What is a Bridge Loan?

Bridge loans are most often used for commercial real estate purchases to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long-term financing. Bridge loans on a property are typically paid back when the property is sold, refinanced with a traditional lender, the borrower's creditworthiness improves, the property is improved or completed, or there is a specific improvement or change that allows a permanent or subsequent round of mortgage financing to occur.

A bridge loan is similar to and overlaps with a hard money loan. Both are non-standard loans obtained due to short-term, unusual, or opportunistic circumstances. The difference is that hard money refers to the lending source, usually an individual, investment pool, or private company that is not a bank in the business of making high risk, high interest loans, whereas a bridge loan refers to the duration of the loan. BlueCay Capital manages a pool of private capital which makes us a hard money, bridge lender.

Examples

• A bridge loan is often obtained by developers to carry a project while permit approval is sought. Once the project is fully vetted and approved, it becomes eligible for loans from more traditional sources at lower-interest, and for longer terms.
• A consumer is purchasing a new residence and plans to make a down payment with the proceeds from the sale of a currently owned home. The currently owned home will not close until after the close of the new residence. A bridge loan allows the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid.
• A bride loan can be used by a business to ensure continued smooth operation during a time when for example one senior partner wishes to leave while another wishes to continue the business. The bride loan could be made based on the value of the company premises allowing funds to be raised via other sources for example a management buy in.
• A commercial property may be offered at a discount if the purchaser can close quickly. In auction situations where the purchaser has only 14–28 days to complete the sale, traditional mortgages are usually not an option. Assuming the buyer can get the necessary inspections/appraisals done, the buyer can use bridge financing to acquire the property (at a discount) and take out the short-term loan once he owns the property.