Bridge loans have become one of the most powerful tools in a real estate investor's arsenal. They provide the speed and flexibility that traditional financing simply cannot match, enabling investors to capitalize on opportunities that would otherwise slip away.
At Arbitrust Lending, we have funded bridge loans across virtually every property type and investment scenario. With over $120 million in real estate under management, our founder Andrew Shader built this company from an operator's perspective. We understand what investors need because we are investors ourselves.
This comprehensive guide will walk you through everything you need to know about bridge loans: how they work, what they cost, when to use them, and how to structure your exit strategy for success.
What is a Bridge Loan?
A bridge loan is a short-term financing solution designed to "bridge" the gap between an immediate capital need and a longer-term financing solution. In real estate, bridge loans typically range from 12 to 36 months and are secured by the property itself as collateral.
Unlike traditional bank financing, bridge loans prioritize the asset and the deal over the borrower's personal financial profile. This makes them ideal for investors who need to move quickly, are working with properties that do not fit conventional lending criteria, or require flexible terms that banks simply will not provide.
How Bridge Loans Differ from Traditional Financing
The differences between bridge loans and conventional mortgages are substantial:
Speed: While traditional bank loans can take 45-90 days to close, bridge loans can fund in as little as 48 hours. At Arbitrust, we have closed deals in under a week countless times because we understand that in competitive markets, timing is everything.
Underwriting Focus: Banks scrutinize your personal income, tax returns, employment history, and credit score. Bridge lenders focus primarily on the property's value, the deal's viability, and your exit strategy. Your personal financials matter, but they are not the primary driver of approval.
Flexibility: Conventional loans come with rigid requirements around property condition, occupancy, and documentation. Bridge loans can accommodate properties in transition, value-add opportunities, and complex ownership structures that banks would never touch.
Loan Structure: Bridge loans are typically interest-only, which maximizes your cash flow during the loan term. Traditional mortgages amortize from day one, requiring larger monthly payments.
How Bridge Loans Work
Understanding the mechanics of a bridge loan will help you determine if this financing strategy aligns with your investment goals.
The Bridge Loan Process: Step by Step
Step 1: Initial Consultation and Deal Review
The process begins with a conversation about your specific deal. At Arbitrust, we want to understand the property, your investment thesis, your timeline, and your exit strategy. This initial review typically happens within 24 hours of your inquiry.
Step 2: Preliminary Term Sheet
If the deal fits our lending criteria, we provide a preliminary term sheet outlining the proposed loan amount, interest rate, term, and key conditions. This gives you a clear picture of costs before you commit to moving forward.
Step 3: Due Diligence and Underwriting
Once you accept the term sheet, we order an appraisal and conduct our underwriting. This includes reviewing the property's value, analyzing your exit strategy, and verifying basic borrower information. Unlike banks, we do not require months of financial documentation.
Step 4: Loan Approval and Documentation
After underwriting approval, we prepare loan documents. Our legal team works efficiently to ensure documents are ready for signing within days, not weeks.
Step 5: Closing and Funding
At closing, you sign the final documents, and we wire funds. For straightforward deals, this entire process can happen in as little as 48 hours from initial contact to funding.
Typical Timeline
Most bridge loans close within 7-14 business days. However, when speed is critical, we can accelerate this timeline significantly:
The timeline depends largely on how quickly you can provide necessary information and how complex the property and deal structure are.
Bridge Loan Requirements
Every lender has different criteria, but here is what we look for at Arbitrust Lending when evaluating bridge loan requests.
Loan-to-Value (LTV) Requirements
We lend up to 75% of the property's current as-is value. This means if you are purchasing a property valued at $1,000,000, we can provide up to $750,000 in financing.
For value-add deals, we also consider the after-repair value (ARV) when structuring loans that include renovation capital. However, we remain conservative on leverage because protecting our capital—and yours—requires maintaining adequate equity cushion.
First Lien Position
All Arbitrust bridge loans require first lien position on the property. This means our mortgage takes priority over any other liens. We do not provide second position or mezzanine financing on bridge loan transactions.
Property Types We Finance
Bridge loans work across virtually all commercial and investment property types:
We evaluate each property on its merits. Properties in transition, those requiring stabilization, and assets that do not fit conventional lending boxes are often ideal candidates for bridge financing.
Borrower Qualifications
While we focus primarily on the deal and the asset, borrowers must meet certain baseline requirements:
We do not require extensive personal income documentation. We care more about your ability to execute the business plan than your W-2 income.
Bridge Loan Rates and Costs
Transparency around costs is essential. Here is exactly what you can expect when financing through Arbitrust Lending.
Interest Rates
Our bridge loan interest rates typically range from 9% to 14%, depending on several factors:
All our bridge loans feature interest-only payments during the loan term. This structure maximizes your cash flow and keeps monthly carrying costs manageable.
Origination Fees
We charge origination fees of 1% to 2% of the loan amount. This fee is typically paid at closing and covers underwriting, document preparation, and loan processing.
For a $500,000 bridge loan with a 1.5% origination fee, you would pay $7,500 at closing.
Other Closing Costs
Beyond the origination fee, expect the following closing costs:
Total Cost Example
For a $500,000 bridge loan at 11% interest with a 1.5% origination fee and a 12-month term:
Total cost for one year of financing: approximately $65,500-$70,500
While bridge loans cost more than conventional financing, the speed, flexibility, and ability to capture opportunities that would otherwise be impossible often make them the most cost-effective choice for sophisticated investors.
Pros and Cons of Bridge Loans
Every financing tool has advantages and disadvantages. Understanding both helps you make informed decisions.
Advantages
Speed to Close: This is the primary advantage. When you need to close quickly to secure a deal, bridge loans deliver. We have funded transactions in 48 hours when circumstances required it.
Flexible Underwriting: Properties that banks will not touch—those in transition, with vacancy issues, or requiring significant work—can often be financed with bridge loans.
Interest-Only Payments: Lower monthly payments during the loan term preserve your capital for property improvements, operations, and other investments.
No Prepayment Penalties: Most bridge loans, including ours, allow you to repay early without penalty. This flexibility is valuable when your exit strategy executes faster than expected.
Asset-Based Lending: The deal matters more than your personal financial profile. This enables investors to scale without being limited by personal income requirements.
Creative Deal Structures: Bridge lenders can accommodate complex transactions that conventional lenders simply cannot process.
Disadvantages
Higher Interest Rates: Bridge loans cost more than conventional financing. Rates of 9-14% are significantly higher than the 6-8% you might find at a bank.
Shorter Terms: With terms of 12-36 months, you must execute your business plan and exit strategy within a defined timeframe.
Larger Down Payment: At 75% LTV maximum, you need at least 25% equity in the deal. Conventional loans may allow higher leverage.
Exit Strategy Risk: If your exit strategy does not work as planned—the property does not stabilize, the sale does not materialize, or refinance options dry up—you face potential extension fees or default.
Higher Closing Costs: Origination fees of 1-2% add to your total project costs.
When Bridge Loans Make Sense
Bridge loans are the right choice when:
When to Consider Alternatives
Bridge loans may not be the best fit when:
When to Use a Bridge Loan: 5 Key Scenarios
Bridge loans shine in specific situations. Here are five scenarios where they provide significant value.
Scenario 1: Acquisitions Requiring Fast Close
You find an off-market multifamily property at a significant discount to market value. The seller has multiple offers and will accept the first buyer who can close in two weeks. Bank financing would take 60 days minimum.
A bridge loan allows you to move decisively, lock up the deal, and capture value that would otherwise go to a competitor. The speed advantage alone can be worth tens or hundreds of thousands of dollars in acquisition savings.
Scenario 2: Repositioning and Stabilization
You acquire a 20-unit apartment building at 60% occupancy. Banks will not provide permanent financing until the property stabilizes at 90%+ occupancy. You need capital to make improvements, upgrade units, and fund operations during lease-up.
A bridge loan provides the runway to execute your value-add business plan. Once stabilized, you refinance into permanent financing at lower rates, having created significant equity through your operational improvements.
Scenario 3: Time-Sensitive Opportunities
A distressed property comes to market through an estate sale. The heirs want a quick close and are willing to sell 20% below market value. The catch: they need to close in 10 days.
Bridge financing lets you capture this opportunity without liquidating other investments or passing on a deal that pencils out even with higher financing costs.
Scenario 4: Properties That Do Not Qualify for Conventional Financing
You find a mixed-use building with ground-floor retail and apartments above. The retail space has been vacant for two years, and the apartments need updating. No bank will touch it.
Bridge loans are designed for exactly this situation. We look at what the property can become with proper management and capital investment, not just its current impaired state.
Scenario 5: Portfolio Expansion
You are an experienced investor looking to scale your portfolio rapidly. Banks limit your borrowings based on personal income and existing debt. Bridge loans, focused on individual deal quality rather than personal debt-to-income ratios, allow you to grow faster.
Bridge Loans vs. Alternatives
Understanding how bridge loans compare to other financing options helps you choose the right tool for each situation.
Bridge Loans vs. Hard Money Loans
These terms are often used interchangeably, but there are differences. Hard money loans traditionally focus on short-term fix-and-flip financing for residential properties, often with very short terms (6-12 months) and higher rates.
Bridge loans typically involve longer terms (12-36 months), larger loan amounts, and commercial or investment properties. At Arbitrust, we use "bridge loan" to describe our short-term financing for investment properties, though the mechanics are similar to what others might call hard money lending.
Key Difference: Bridge loans often offer more flexibility on term length and are more common for commercial properties and larger transactions.
Bridge Loans vs. Conventional Bank Financing
Conventional bank financing offers lower rates (typically 6-8% currently) and longer terms (25-30 years), but comes with significant drawbacks:
Key Difference: Use conventional financing when you have time, the property qualifies, and you want the lowest long-term cost. Use bridge financing when speed, flexibility, or property condition issues make conventional financing impossible or impractical.
Bridge Loans vs. DSCR Loans
DSCR (Debt Service Coverage Ratio) loans are a form of permanent financing that qualifies based on the property's income rather than your personal income. They offer longer terms (30 years typically) and competitive rates.
However, DSCR loans require the property to generate sufficient income to cover debt service—usually 1.20x to 1.25x the monthly payment. Properties in transition or with vacancy issues typically do not qualify.
Key Difference: DSCR loans are an excellent exit strategy from bridge financing. Use a bridge loan to acquire and stabilize, then refinance into a DSCR loan for long-term hold.
Bridge Loan Exit Strategies
Your exit strategy is perhaps the most important element of any bridge loan. At Arbitrust, we underwrite the exit as carefully as we underwrite the property itself.
Exit Strategy 1: Refinance to Permanent Financing
The most common exit strategy involves refinancing the bridge loan into longer-term financing once the property stabilizes or the borrower qualifies for better terms.
How it works: You acquire or improve a property with bridge financing. After 12-24 months of stabilization, the property qualifies for conventional bank financing or a DSCR loan at lower rates and longer terms.
Best for: Value-add investors, properties requiring stabilization, investors building long-term portfolios
Requirements: The property must reach a condition or occupancy level that meets permanent lender requirements
Exit Strategy 2: Sale of the Property
Many investors use bridge financing to acquire, improve, and sell properties within the loan term.
How it works: You purchase a property below market value, make improvements that increase its worth, and sell at a profit. The sale proceeds pay off the bridge loan.
Best for: Fix-and-flip investors, developers, investors capitalizing on specific market timing
Requirements: Accurate market analysis, realistic renovation timeline, and sufficient margin to cover all costs including financing
Exit Strategy 3: DSCR Loan Takeout
DSCR loans have become an increasingly popular exit from bridge financing, particularly for investors who want long-term holds without the documentation requirements of conventional bank financing.
How it works: You stabilize the property's income to the point where it meets DSCR lender requirements (typically 1.20x debt service coverage). You then refinance into a 30-year DSCR loan based on the property's cash flow.
Best for: Buy-and-hold investors, those seeking to avoid personal income documentation, portfolio builders
Requirements: Property must generate rental income sufficient to meet DSCR thresholds
Planning Your Exit Strategy
We work with every borrower to understand and validate their exit strategy before funding. A realistic exit strategy includes:
Properties with clear, executable exit strategies get better terms and smoother approvals.
How to Get Started with Arbitrust Lending
If you have a deal that could benefit from bridge financing, here is how to work with us.
Our Process
Step 1: Submit Your Deal
Contact us through our website or call directly. Provide basic information about the property, the loan amount you need, your timeline, and your planned exit strategy. We respond to all inquiries within 24 hours.
Step 2: Preliminary Review
We evaluate the deal quickly and provide initial feedback. If the deal fits our parameters, we issue a preliminary term sheet outlining proposed terms.
Step 3: Move to Underwriting
Accept the term sheet and we move to formal underwriting. We order an appraisal, review your borrower profile, and finalize loan terms.
Step 4: Closing
Once approved, we prepare documents and schedule closing. For straightforward deals, this can happen within days.
The 48-Hour Funding Advantage
When timing is critical, we can close in as little as 48 hours on deals that meet certain criteria:
Even when 48-hour closing is not necessary, our streamlined process gets deals done in days rather than the months required by conventional lenders.
The Direct Lender Difference
Arbitrust Lending is a direct lender. We fund loans from our own capital, which provides several advantages:
Faster Decisions: We do not need to submit your deal to a committee or get approval from outside investors. Our team makes decisions directly.
Consistent Execution: Deals do not fall apart due to secondary market changes or investor pullback. When we commit, we close.
Relationship Focus: We work directly with borrowers throughout the process and beyond. Many of our clients return for deal after deal because they value the relationship and reliability.
Flexible Structuring: As principals, we can structure deals creatively to meet specific borrower needs.
What We Look For
We fund bridge loans for experienced investors with clear business plans and realistic exit strategies. The ideal Arbitrust borrower:
Frequently Asked Questions
What is the minimum and maximum loan amount for bridge loans?
Our bridge loans typically range from $150,000 to $5,000,000+. We evaluate larger transactions on a case-by-case basis. Smaller loans below $150,000 often do not make economic sense given the fixed costs of origination and underwriting.
Can I get a bridge loan with bad credit?
We are more flexible than conventional lenders on credit issues. While significant recent credit problems may affect terms or require additional explanation, we focus primarily on the deal quality and your ability to execute. A strong deal with a clear exit strategy can often overcome credit challenges.
How quickly can you actually fund a bridge loan?
Our fastest closings happen in 48-72 hours for straightforward deals. Most transactions close in 7-14 business days. Complex deals may take 2-4 weeks. The timeline depends on property complexity, title issues, appraisal scheduling, and how quickly you provide required information.
What happens if I cannot pay off the bridge loan at maturity?
We work with performing borrowers who need more time. Extension options are typically available for loans in good standing, though extension fees apply. The key is proactive communication—contact us well before maturity if you anticipate needing more time.
Do you require personal guarantees?
Yes, bridge loans typically require personal guarantees from principals with significant ownership stakes. This aligns borrower interests with successful loan performance. We may consider limited or non-recourse structures for exceptional borrowers and deals on a case-by-case basis.
Can I use a bridge loan for ground-up construction?
Our bridge loans are designed for existing properties, not ground-up construction. Construction financing involves different risks and requirements. However, we can finance properties where construction is substantially complete or for renovation of existing structures.
What documentation do I need to apply?
For initial review, we need basic property information, your planned use of funds, exit strategy, and high-level borrower information. Full underwriting requires property appraisal, title, borrower financial summary, and entity documentation. We do not require extensive tax returns or personal financial statements like banks do.
Are your rates negotiable?
Rates depend on deal specifics: leverage, property quality, borrower experience, and market conditions. We price each deal based on its risk profile. Strong deals with experienced borrowers and lower leverage typically receive our best pricing. We are always transparent about how we arrive at our pricing.
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Take the Next Step
Bridge loans are powerful tools when used appropriately. They provide the speed and flexibility to capture opportunities that conventional financing cannot accommodate. The key is understanding when bridge financing makes sense, structuring deals with clear exit strategies, and working with a lender who understands real estate from an operator's perspective.
At Arbitrust Lending, we built our company to serve investors who think like we do—entrepreneurs who see opportunity and need capital partners who can move at the speed of business. With over $120 million in real estate under management, we bring operator experience to every loan we underwrite.
If you have a deal that could benefit from bridge financing, we would welcome the opportunity to review it. Contact us today to discuss your specific situation and learn how we can help you achieve your investment goals.
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All loan terms subject to underwriting approval. Interest rates, loan-to-value ratios, and other terms may vary based on borrower qualifications, property characteristics, and market conditions. This guide is for informational purposes only and does not constitute a commitment to lend.
