Definition
The term of a CRE bridge loan encompasses all structural features that define the financing relationship between borrower and lender. The most basic element is the loan duration — typically 12 to 36 months for bridge loans, significantly shorter than the 5-10 year terms of permanent financing. Most bridge loans include one or two extension options (each typically 6-12 months), allowing borrowers additional time to execute their business plan if needed, usually subject to meeting certain conditions like a minimum DSCR or LTV threshold. Interest rates on bridge loans are typically floating (based on SOFR or a prime rate) plus a spread, or fixed at rates ranging from 8% to 13%. Other key terms include the LTV (how much the lender will advance relative to value), prepayment provisions (penalties or lockouts for early repayment), reserve requirements (escrows for taxes, insurance, interest, or capital improvements), recourse provisions (whether the borrower has personal liability), and closing costs (origination fees, legal fees, and third-party reports).
How It Works
When a sponsor approaches a bridge lender, they receive a term sheet outlining all proposed loan terms. The sponsor evaluates the terms based on their business plan timeline, cost of capital, and exit strategy. Key considerations include: Will the term be long enough to execute the business plan? Are extension options available if more time is needed? What are the total costs including origination fees and interest reserves? Does the rate structure (fixed vs. floating) align with the sponsor's risk tolerance? After negotiating terms, the loan closes and the sponsor begins executing their plan within the agreed-upon timeframe.
Example
A typical bridge loan term sheet might include: Loan Amount: $8,000,000. LTV: 75% of as-is value. Rate: SOFR + 4.50% (approximately 9.5% all-in). Term: 24 months initial with two 6-month extension options (36 months maximum). Structure: Interest-only. Origination Fee: 1.5 points ($120,000). Prepayment: No penalty after 12 months. Reserves: 6 months interest reserve, tax and insurance escrow. Recourse: Non-recourse with standard carve-outs.
Why It Matters
Loan terms directly impact the cost and risk of a bridge financing. A sponsor who understands how to evaluate and negotiate loan terms can significantly reduce their cost of capital and increase the probability of successful execution. Comparing term sheets across lenders requires understanding how each component — rate, leverage, fees, prepayment, and recourse — affects the overall deal economics.
H Equities
H Equities provides competitive bridge loan terms tailored to each deal, with flexible structures designed to align with the sponsor's business plan and timeline. Learn more
Frequently Asked Questions
What is the typical term for a CRE bridge loan?
Most bridge loans have initial terms of 12-36 months with one or two 6-12 month extension options. Total potential duration is typically 24-48 months.
What is an extension option?
An extension option gives the borrower the right to extend the loan term beyond the initial maturity date, typically for 6-12 months, subject to meeting certain conditions such as no default, minimum DSCR, or payment of an extension fee.
What does non-recourse mean?
A non-recourse loan means the lender can only look to the property (not the borrower's personal assets) for repayment in the event of default. However, most non-recourse loans include "bad boy" carve-outs that make the borrower personally liable for fraud, environmental contamination, or other specific acts.
What are origination fees?
Origination fees (also called "points") are upfront fees charged by the lender at closing, typically 1-3% of the loan amount. They compensate the lender for underwriting and processing the loan. One point equals 1% of the loan amount.
Related Terms
Bridge Loan in Commercial Real Estate
A short-term loan (typically 6-36 months) used to "bridge" the gap between acquiring or repositioning a property and securing permanent financing.
Interest-Only Loan
A loan where the borrower pays only interest during the loan term (no principal reduction), resulting in lower monthly payments but a full principal balance due at maturity.
Loan-to-Value (LTV) Ratio
The ratio of a loan amount to the appraised value of the property, used by lenders to assess risk. Lower LTV means less risk for the lender.
Debt Service Coverage Ratio (DSCR)
A metric that measures a property's net operating income relative to its total debt obligations, indicating the property's ability to service its debt.
Senior Debt in Commercial Real Estate
The first mortgage or primary loan on a property, holding the highest priority claim on cash flow and sale proceeds in the capital stack.