The short version
| Hard money bridge (Larry the Lender) | Bank or fund bridge loan | |
|---|---|---|
| Approved mainly on | The property’s value today, from comparable sales | Typically the property’s income, your financials, and experience |
| Decision | Same day | Set by the lender; usually longer |
| Closing | As soon as the next day | Set by the lender |
| Property condition | Any investment property, including unstabilized | Often prefers stabilized or near-stabilized |
| Rate and points | 12.99% interest-only; 2 points (6 mo) or 3 points (12 mo) | Set by the lender; often lower |
| Term | 6 or 12 months, renewable | Set by the lender |
| Prepayment penalty | None, and no minimum interest | Varies; ask |
| Minimum loan | $100,000 | Often larger; varies |
What "Bridge Loan" Actually Means
“Bridge loan” describes what the money is for, not who it comes from. You’re bridging from one point to another: from purchase to refinance, from a vacant building to a leased one, or from closing on a new property to selling an old one.
So a bridge loan can come from a bank, a debt fund, or a private lender. When a private lender makes it, approved mainly on the property, it’s usually called a hard money loan. That’s why the two terms get used interchangeably, and why comparing them is really comparing lenders and terms.
Where a Hard Money Bridge Fits on Commercial Deals
Speed is the obvious one. If a seller wants to close in a week, a lending process that takes a month or more doesn’t work. Larry makes the decision the same day.
The other is a property that isn’t ready for long-term financing yet. A building with high vacancy, deferred maintenance, or a change of use underway can be hard to finance on long-term terms until it’s stabilized. Larry values the property himself from comparable sales and lends on what it’s worth today, on any type of investment property.
And then there’s the plan to refinance. Larry’s loans are interest-only, renewable if a project runs long, and carry no prepayment penalty, so you can pay him off the day your long-term loan closes.
What a Commercial Bridge Costs with Larry
Say Larry values a building at $1,600,000 and you borrow $1,200,000, which is 75% of his value. You take the 6-month term and refinance in month five.
Points: 2 x $12,000 = $24,000
Interest: $12,990 a month x 5 = $64,950
Total cost of the loan: $88,950
That’s points and interest only. Title and closing costs come on top. There’s no prepayment penalty and no minimum interest, so the sixth month never gets charged.
Before you borrow, ask any lender what an extension costs. If the refinance takes longer than planned, that’s the number that matters. Larry’s loans are renewable. Ask him what a renewal costs before you count on one.
When a Bank or Fund Bridge Loan May Fit Better
If the property is already producing income, you have time to close, and the deal is large enough for an institutional lender, a bank or debt fund bridge loan may cost less. Those lenders typically look harder at the property’s income, your financial statements, and your experience. If you can wait and you qualify, compare their quote against Larry’s total cost, not just the rate.
Questions to Ask Any Bridge Lender
How fast can you give me a decision, and how fast can we close? How do you value the property, and do you need an appraisal? How much will you lend as a percentage of value? What are the rate, points, and every fee? Is there a prepayment penalty or minimum interest? What does an extension cost, and how many are allowed? Do you need a personal guarantee?
