SHORT TERM
Bridge loans take a borrower from one phase of finance to another. Commercial projects with value add components can be attractive to various types of lenders at different phases of the project. For instance, a bank may make a construction loan, which matures prior to completion of the project. The borrower would need a bridge loan to refinance the construction loan and provide the additional capital to complete the project. At that point the bridge loan can be refinanced by the long-term financing available.
COMMERCIALLY BASED
Bridge loans are typically commercial loans. Even when the collateral isn’t a commercial property, the loan is still considered a non-consumer commercial loan. It’s unlikely that a homeowner building their own home would be in a position where they would need a bridge loan, let alone get approved for one since mortgage lending is regulated so differently. Furthermore, bridge loans carry a very short term, often even shorter than the term of a construction loan.
Bridge loans are a much-needed component of finance that most developers and real estate entrepreneurs utilize some time along their path to success.