What Are Bridge Loans? Not the Same as Gap Loans

2 Replies

Many people ask the question, ‘what are bridge loans?’ A bridge loan is essentially a commercial hard money loan. A bridge loan can also be a short-term loan on an investment property. This is not to be confused with “gap financing.” Bridge financing and gap financing are often used interchangeably but this is a mistake. These are two different types of financing.

Gap financing is essentially the gap between what a lender is willing to lend and the acquisition price of a property. This is the amount that the borrower on the loan is expected to bring in as a down payment to close on the property. However, some borrowers don’t have any cash for a down payment so they seek out another lender that will provide gap financing.

In an example, a borrower is buying an investment property and is able to get a bridge lender to provide a hard money loan on the purchase. The bridge lender provides a loan for 75% of the purchase price and expects the borrower to bring in 25% as a down payment. If the borrower doesn’t have the 25%, they must find a gap lender that will bring in the 25%, to close on the property.

Hopefully this discussion will clear up any confusion between bridge financing and gap financing. I hear people using these terms interchangeably to mean the same thing and these are 2 different types of financing. Any comments or anything you would add to this discussion?

Hi Cory!

I am an investor and I am just getting into commercial sized apartments. I understand you do bridge loans and I am interested in learning more about these products. For example, what kind of terms can I expect to find when using this form of financing? Second question is when is it beneficial to seek this as a financing option instead of using a large bank? So you know I use private money investors to fund deals as well as my own capitol. Do you do deals in any state or are you limited in any way?

P.s. posting here because I could not send you a private message until we are "colleagues"

Looking forward to hearing back from you!
Scott Blair

Hi Scott,
To answer your questions:
You can usually expect that a bridge lender will give you 65-75% of the purchase price on multifamily commercial. So you'll have to be prepared to bring in a large chunk of cash. You can find terms on bridge loans from 9% up to 12% interest only. Loan fees range from 4-6 points.

If you have a vacant property, most banks won't lend on this. If it needs some work, the same applies. This is when a bridge lender may be the best way to go. Also if you need to move quickly on the purchase to take advantage of a lower "cash" price, this is also a good way to use private money loans.

We offer bridge loans in several States. Let's connect soon!

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