A bridge loan is short-term financing (6-36 months) used to acquire, reposition, or stabilize a commercial property before securing long-term debt. Permanent financing is a fully amortizing or long-term loan (5-30 years) placed on a stabilized asset. Bridge loans trade higher rates for speed and flexibility; permanent loans offer lower costs but require stabilized cash flow.
Quick Comparison
Key attributes side by side.
| Attribute | Bridge Loan | Permanent Financing |
|---|---|---|
| Position in Capital Stack | Senior secured (first lien) | Senior secured (first lien) |
| Security / Collateral | Mortgage on the property | Mortgage on the property |
| Typical Term | 6-36 months with extensions | 5-30 years |
| Cost / Rate Range | 8-12% + origination fees (1-2 pts) | 5.5-7.5% fixed or floating |
| Risk Profile | Higher rate, shorter duration, maturity risk | Lower rate, long-term certainty |
| When to Use | Transitional assets, value-add, time-sensitive closings | Stabilized assets with predictable cash flow |
| Foreclosure / Remedy | Foreclosure on the property | Foreclosure on the property |
In Depth
Bridge loans are short-term financing instruments designed for commercial real estate deals where the property is in transition. This could mean the property is being acquired, undergoing renovation, in lease-up, or otherwise not yet stabilized enough to qualify for permanent financing. Bridge lenders focus heavily on the business plan and exit strategy rather than solely on current cash flow.
Typical bridge loan terms range from 12 to 36 months, often with extension options. Interest rates generally fall between 8% and 12%, and lenders typically charge origination fees of 1-2 points. Most bridge loans are interest-only during the term, which preserves cash flow for capital improvements. They can close in as little as 2-4 weeks, making them ideal for competitive acquisition timelines.
The primary risk of a bridge loan is maturity risk. If the borrower cannot execute their business plan within the loan term, they may face difficulty refinancing or be forced to sell at an inopportune time. However, for experienced sponsors with a clear value-add thesis, bridge loans are an essential tool for unlocking deals that conventional lenders will not touch.
In Depth
Permanent financing, also called a "perm loan" or "takeout loan," is long-term debt placed on a stabilized commercial property. These loans typically range from 5 to 30 years and are offered by banks, life insurance companies, CMBS lenders, and agency lenders (Fannie Mae, Freddie Mac for multifamily). The property must demonstrate stable occupancy and predictable cash flow.
Permanent loans offer significantly lower interest rates than bridge loans, generally ranging from 5.5% to 7.5%. They may be fixed-rate or floating, and can be structured as fully amortizing or with a balloon payment at maturity. Debt service coverage ratio (DSCR) requirements typically range from 1.20x to 1.35x, and loan-to-value ratios usually cap at 65-75%.
The primary advantage of permanent financing is long-term cost certainty. A fixed-rate permanent loan eliminates interest rate risk and provides predictable debt service for years. The main drawback is the time required to close (45-90+ days) and the stringent underwriting requirements around occupancy, cash flow, and borrower financial strength.
Key Differences
Term length: Bridge loans are 6-36 months; permanent loans are 5-30 years.
Interest rates: Bridge loans cost 8-12%; permanent financing costs 5.5-7.5%.
Property condition: Bridge loans work for transitional assets; permanent loans require stabilized properties.
Closing speed: Bridge loans close in 2-4 weeks; permanent loans take 45-90+ days.
Underwriting focus: Bridge lenders underwrite the business plan and exit; permanent lenders underwrite current cash flow and DSCR.
Amortization: Bridge loans are typically interest-only; permanent loans may be amortizing.
Prepayment: Bridge loans have minimal prepay penalties; permanent loans often carry yield maintenance or defeasance.
Decision Guide
Practical scenarios to help you decide.
Our Role
H Equities provides bridge loans from $5MM to $50MM for transitional commercial real estate assets nationwide. Whether you need acquisition financing, a repositioning loan, or a bridge to permanent takeout, we structure flexible terms with quick execution. Our team can also help you plan and time your permanent financing exit strategy.
FAQ
Yes. This is the most common strategy, known as "bridge to perm." Sponsors use a bridge loan to acquire and stabilize an asset, then refinance into a permanent loan once the property meets stabilization requirements. H Equities structures bridge loans with this exit strategy in mind.
Bridge loans typically carry rates of 8-12%, while permanent financing generally falls between 5.5-7.5%. The premium on bridge loans reflects the higher risk associated with transitional assets and the shorter time horizon.
Bridge loans can close in as little as 2-4 weeks, while permanent financing usually requires 45-90+ days due to more extensive underwriting, appraisals, and documentation requirements.
No. Bridge loans are used for acquisition, light-to-moderate renovation, and lease-up of existing properties. Construction loans fund ground-up development or heavy gut rehabilitation. While there is some overlap in transitional lending, construction loans typically have draw schedules tied to project milestones.
The primary risk is maturity risk: if you cannot stabilize the property or execute your business plan within the loan term, you may face difficulty refinancing or be forced to sell. Interest rate risk is also a factor if the bridge loan is floating rate and rates rise during the term.
Related
Tell us about your transaction and we'll help you identify the right financing structure — bridge, mezzanine, preferred equity, or co-GP.