Commercial Bridge Loans: All Their Risks and Advantages

The best commercial bridge loan lenders, whether for real estate investments or working capital needs, all in one place.
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Commercial Bridge Loans: What You Need to Know

Bridge loan financing, as a whole, serves as a short-term solution—bridge loans are quick-to-fund loans that borrowers take on for time-pressing expenses with the intention to refinance them or pay them off quickly because of their expensive nature. Commercial bridge loans—often referred to as commercial bridging loans or business bridge loans—fit the general definition of bridge loans, but their proceeds are always put towards business expenses.

Most often, business owners take on commercial mortgage bridge loans when they’re presented with an urgent real estate investment opportunity. After taking on this commercial real estate loan, business owners will either pay it off quickly or refinance it with a longer-term form of funding.

Business bridge loans are tough to wrap your head around. As a concept, business bridge loans can be hazy, and that’s because the title of “bridge” really only describes how a borrower uses the loan, rather than describing any specific characteristic that the loan exhibits.

As a result, really any business loan can be a commercial bridge loan—as long as you use it in a specific way. So, without further ado, let’s dive into the details on commercial bridge loans so that you can decide whether or not they’re right for you:


Commercial Bridge Loans: What to Look For

Before we dive into the ins and outs of all things bridge loans, let’s cover two fundamental characteristics that a bridge loan should have in order to make it worth your while. Though your requirements for a commercial bridge loan might go beyond these two core tenants based on your situation, let’s consider these two must-haves for commercial bridge loans:

Quick-to-Fund

Perhaps most importantly, any business loan you use as a commercial bridge loan needs to fund quick enough to allow you to put the proceeds towards whatever urgent expense you need to. As a result, you’re going to need to look beyond traditional sources of business funding for your commercial bridge loan.

Because banks will take months and months to fund your business loan application, you should consider alternative lenders to be pretty much synonymous with commercial bridge loan lenders. Certain short-term alternative lenders will be able to fund your application in as little as a day, and very few will need more than a week to get you your commercial bridge loan.

Prepayment Incentives

Additionally, an ideal bridge loan will need to have some sort of prepayment incentive. If, for instance, you take on a commercial bridge loan that is amortizing, paying it off early will mean that you’ll save money by avoiding interest. On the other hand, if you take on a commercial bridge loan with a factor rate—which typically means you’ll pay a set amount of interest no matter what—you should make sure it comes with a prepayment discount.

Your commercial bridge financing should have prepayment incentives, because saving money for paying it off early is essentially the whole point. And if you have to pay a hefty prepayment penalty for paying off your commercial bridge loan ahead of the lender’s set schedule, then it might not be worth paying down at all. And any commercial bridge loan you don’t end up paying down early isn’t really a commercial bridge loan at all.


Business Bridge Loans: The Top 3 Lenders

With those fundamentals laid out for us, let’s start putting them into action. Which commercial bridge loan lenders check off those two boxes and deliver the best short-term capital solutions possible?

Here are three alternative lenders that offer products that are quick-to-fund and won’t saddle you with prepayment penalties, making them ideal for commercial bridge loans.

1. Quarterspot

First up, the alternative lender Quarterspot offers a rarity within the lending space—a short-term loan that fully amortizes. This means that, if you’re able to pay down your Quarterpost commercial bridge loan ahead of schedule, you’ll be able to save on avoided interest. Additionally, because Quarterspot’s product is still a short-term loan, they’re able to fund applications within two to five days.

Overall, because Quarterspot offers one of very few short-term amortizing loans on the market, they could be the most ideal commercial bridge loan lender for you to look to for fast capital.

2. Fundation

On the other hand, Fundation is another alternative lender that will offer funding with longer repayment terms, but that can still fund just as quickly—if not even quicker—than its shorter-term counterparts. Though Fundation offers term loan with repayment term lengths as long as four years, they’re able to fund applications within a day. Plus, Fundation won’t charge you a prepayment penalty once you refinance or pay your debt down early.

3. Credibility

Our final pick for the top three commercial bridge loan lenders is Credibilty. This lender also offers medium term loans with no prepayment penalties, but they’ll underwrite more holistically and offer automatic monthly payments. And though they’ll take a bit longer than other alternative lenders to fund—expect a lag time of around three to five days—their flexibility and terms might be worth the extra bit of waiting.


Commercial Bridge Loans: 3 Common Use-Cases

Now that we’ve taken a look at the top commercial bridge loan lenders in the space, let’s consider commercial bridge loans even more practically. What are some common uses for commercial bridge loans? And what will using a commercial bridge loan look like in these cases?

Whether you’re securing a commercial mortgage bridge loan for a real estate investment, or you need to keep your business afloat before being acquired, putting a commercial bridge loan to use is much easier to understand when you’re considering it in a more real-world setting.

So, let’s explore three common use-cases for commercial bridge loans to get an even firmer grasp on what bridge loan financing can really do for a business.

1. Investing in a Solid Commercial Real Estate Deal

Many business owners will take on commercial mortgage bridge loans so that they can jump on a stellar commercial real estate deal while it’s available. Say, for instance, a prime storefront in a busy shopping area in your town is about to go on market. With a commercial mortgage bridge loan, you can secure the funds necessary to swoop in and purchase this storefront immediately.

Once you secure your storefront with a commercial real estate bridge loan, you can then refinance it with a more affordable commercial mortgage, which will likely take a bit of time to find, apply for, and qualify for. 

Because commercial real estate purchases are often so time-sensitive, buying up commercial real estate is one of the most common reasons for securing a commercial bridge loan. As a result, many business owners consider commercial bridge loans and commercial mortgage bridge loans one and the same. However, commercial mortgage bridge loans are the real-estate-specific subset of commercial bridge loans, which, as a whole, can be put towards any time-pressing business expense.

2. Tiding Your Business Over Before Acquisition

In fact, another common use of commercial bridge loans has nothing to do with commercial real estate at all. Many businesses that are on the brink of being acquired will take on short-term financing, which many deem commercial bridge financing.

This scenario typically qualifies as commercial bridge financing because a business has an impending source of capital lined up—the purchaser—to get out of their short-term financing in the near future.

Even if, in this situation, the commercial bridge loan is never formally refinanced, the use of proceeds to tide a business over until a big pay-off still make this an instance of commercial bridge financing.

3. Buying Up Liquidated, Non-Perishable Inventory

Finally, one last typical use for commercial bridge loans is swooping in on great deals for stocking up on inventory. If you come across a huge liquidation sale of inventory you typically stock (and, of course, that inventory is non-perishable), you probably want to jump on this opportunity to stock inventory at a discounted rate. But no matter how discounted the inventory is, buying huge amounts of it in one fell swoop can require a lot of capital, quick.

How’s a business owner to access so much quick capital? You guessed it—a commercial bridge loan.

Taking on quick-to-fund, short-term debt to seize time-sensitive opportunities like discounted inventory is a classic instance of commercial bridge financing. After you secure the inventory, you can then turn around and refinance your commercial bridge loan with a longer-term, more affordable business loan.


Refinancing Commercial Bridge Loans

If you don’t have a source of capital already lined up, then securing a commercial bridge loan is really only half the battle. By definition, a commercial bridge loan requires secondary steps to make it what it is—a temporary capital solution. If you’re not working on being acquired or investing in a sure-fire, high-return venture, then you’re going to need to refinance your commercial bridge loan.

This will entail finding a more affordable business loan that you can use to refinance your commercial bridge financing. Once you find that business loan, you’ll need to make sure that you meet the minimum requirements—if you do, you’ll then just need to collect the necessary documents and apply!

Here are the three best types of business loans available for refinancing commercial bridge financing:

1. Traditional Bank Loans

If you’re able to qualify for one, a traditional business loan from a bank can offer you pretty ideal refinancing terms for your commercial bridge financing. They can offer interest rates as low as 5.5% and repayment term lengths as long a five years.

That said, in order to qualify for a bank loan to refinance your commercial bridge loan, you’ll need to come to the table with some stellar credentials: You’ll typically need a personal credit score of 700+, at least two years in business, and at least $100,000 in annual revenue to be eligible for a business bank loan.

Plus, traditional bank loans can take ages to fund—if your financial situation requires you to get out of your commercial bridge loan before a few months’ time, then you should probably look to a swifter form of refinancing it.

2. SBA Loans

Another, more accessible refinancing option for commercial bridge loans are SBA loans. Through their SBA 7(a) loan program, the Small Business Administration partially guarantees business loans, which, in turn makes SBA-approved lenders more eager to lend to small businesses with more ideal terms. SBA loans can be as large as $5 million, with repayment terms as long as 25 years, and interest rates as low as 6.75%. These terms are so ideal because the SBA guarantee that backs SBA loans assuages much of the risk that lenders take on.

Another byproduct of this partial SBA guarantee? SBA loans tend to be easier to qualify for than traditional bank loans. Because lenders will be taking on less risk with SBA loans, they’ll be less stringent with who they loan to. 

However, because you’ll be dealing with a government agency and a lender when you apply for an SBA loan, there will be a hefty amount of paperwork and bureaucracy involved. As a result, funding with an SBA loan can be a lengthy process. You’ll need at least three weeks to spare if you decide to refinance your commercial bridge loan with an SBA loan.

3. Medium-Term Loans

Finally, if you took on commercial bridge financing in the form of a short-term, high-interest loan, then medium-term loans from alternative lenders could very well offer you an affordable refinancing option. Even with online lenders—who tend to be more expensive than bank or SBA lenders—medium-term loans can have rates as low as 7%, repayment terms as long as five years, and loan amounts as large as much as $500,000.

Plus, alternative lenders will be much less picky about which small businesses they’re willing to help refinance their commercial bridge loans. In fact, many alternative lenders will approach underwriting much more holistically than more traditional lenders. This will also mean a speedier time-to-fund—in fact, you could refinance your commercial bridge loan with an alternative lender in as little as two days.

Refinance Commercial Bridge Loans

Business Bridge Loans: The Bottom Line

Though commercial bridge loans are a clever solution to a common business finance conundrum, they also come with their fair share of risks. We often see common commercial mortgage bridge loan risks that entail getting stuck with a high-interest commercial real estate loan with no way out—be sure your life boat for getting out of a commercial mortgage bridge loan is reliable, or else you could be paying of high-interest debt for a long time.

Another considerable commercial bridge loan risk? Relying too heavily on a risky investment to pay off. If you’re not certain that what your investing in with bridge loan proceeds will pay off, then you should seriously think twice about taking on a commercial bridge loan, assuming it’s a short-term solution.

So what’s the bottom line for finding a commercial bridge loan for your pressing business capital needs?

Commercial bridge financing can be risky business, but, as always, you know what’s best for your business. If you’re eager to jump on a time-sensitive investment opportunity for your business, then a commercial bridge loan could be well worth any risks it poses.

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