In This Article
What Is a Bridge Loan?
A bridge loan is short-term financing (typically 6-24 months) designed to "bridge" a gap until longer-term financing or a specific event occurs. Common scenarios: you're buying a property but your current one hasn't sold yet, you've been approved for an SBA loan but need funds now while it processes, or you're acquiring a business and need quick capital to close the deal before a competitor does. Bridge loans prioritize speed over cost.
How Bridge Loans Work
Bridge lenders focus on two things: collateral value and exit strategy. They want to know what secures the loan (usually real estate or business assets) and how you'll repay it (sale of property, refinance into permanent financing, or business cash flow). Rates are higher than traditional loans — typically 8-15% plus origination fees of 1-3 points. But they fund in 7-21 days versus 30-90 days for conventional loans. Many bridge loans are interest-only during the term, keeping monthly payments manageable.
Real-World Example
A trucking company owner finds the perfect warehouse for $800,000. Their SBA 504 loan is approved but won't fund for 60 days. The seller has another buyer ready. They take a 6-month bridge loan for $640,000 (80% LTV) at 11% interest-only. Monthly payment: $5,867. Origination fee: $12,800 (2 points). When the SBA loan funds 45 days later, they pay off the bridge — total cost was about $11,600 in interest plus the origination fee. That $24,400 total cost preserved a deal that saved them $150,000 compared to the next available property.
Bridge Loans vs. Hard Money Loans
The terms are often used interchangeably, but there's a subtle difference. Bridge loans are structured around a specific exit strategy (refinance, sale, or long-term loan closing). Hard money loans are broader asset-based loans where the lender focuses primarily on collateral value with less emphasis on exit strategy. Hard money rates tend to be slightly higher (10-18%) with shorter terms. Both are faster than bank financing but more expensive.
Pros & Cons
Pros
- Extremely fast funding (7-21 days)
- Allows you to seize time-sensitive opportunities
- Interest-only payments keep costs manageable
- Less focus on credit score, more on collateral
- Can bridge to better long-term financing
Cons
- Higher interest rates than permanent financing (8-15%)
- Origination fees add to cost (1-3 points)
- Short repayment window creates pressure
- Requires strong collateral (usually real estate)
- Risk if your exit strategy doesn't materialize
Key Terms to Know
Best For
- Business acquisitions with tight closing timelines
- Real estate purchases while awaiting permanent financing
- Companies bridging to SBA or bank loan approval
- Time-sensitive deals where speed outweighs cost