Bridge Loans: Short-Term Financing Between Two Exits

What is a business-purpose bridge loan?

A bridge loan is short-term financing secured by real estate that covers a gap. The most common use in investing is buying a property before its longer-term financing or sale is ready, and repaying the bridge when the exit happens. Because it is short-term, the lender focuses on the property, the exit and the plan rather than on a long history of income.

Bridge loans sit between two events: a purchase and a refinance, a purchase and a sale, or an existing loan and a new one. The borrower knows the exit before the loan is made, and the loan is structured to reach it.

When do investors use bridge financing?

• Buying a rental before long-term financing is in place, then refinancing into a DSCR loan.
• Buying a property that needs work before it qualifies for permanent financing.
• Covering the gap while a property is listed for sale and a replacement property is being purchased.
• Replacing a loan that is maturing before the new financing closes.

How is a bridge loan underwritten?

The lender looks at the property value, the loan amount and, most importantly, the exit. For a bridge to a DSCR refinance, the lender wants to see that the property can reach the rent-to-payment ratio the long-term loan requires. For a bridge to a sale, the lender wants to see a realistic sale plan.

Because the exit is the security, a bridge loan is only as good as the exit plan. If the refinance or sale slips, the borrower may need to extend or restructure. That is why the exit is planned before the bridge is taken, not after.

How do bridge, hard money and DSCR loans differ?

Bridge loans and hard money loans overlap: both are short-term and property-secured. The distinction is usually one of emphasis. Hard money is often about funding a renovation, while a bridge is often about timing, such as buying before a refinance or sale. A DSCR loan is the long-term destination, not a bridge.

Read the DSCR vs. hard money comparison for the full side-by-side, and hard money to DSCR refinance for the most common bridge exit.

How can a broker help compare your options?

Bridge loans vary by lender in how they are structured and what exits they accept. Hard Money Loan is a Loan Daddy LLC brand, and Loan Daddy LLC is a mortgage broker, not a lender. We arrange and shop financing from wholesale lenders and explain the structures that fit your deal. Send the property and the exit plan through the application.