Bridge Loan for Commercial Real Estate: Steps and Timeline

A bridge loan for commercial real estate is short-term debt, secured by the property, that pays for a purchase, payoff or renovation until a permanent loan or a sale repays it.

Owners use one when the building's income can't yet support long-term debt, or when that debt can't be arranged before a hard date. The term sheet sets how it is built: a fixed or floating rate, whether payments are interest-only, and whether renovation money is held back and released in draws as work is done.

Key points

• Compare term sheets before you sign one with exclusivity. After you sign, deliver whatever the lender needs to order reports, such as a deposit, that week.
• A term sheet is not a commitment. Lenders differ in who grants final approval, in what order, and whether they issue a separate written commitment, so get that path in writing.
• Plan cash for two gaps. Size the permanent loan on projected income now and know what you'd cover if income comes in low (the downside case below shows $1,200,000). If renovation money is released only after inspection, you also pay contractors before you're reimbursed.

What are the steps to get a bridge loan for commercial real estate?

There are seven stages, and in practice they overlap. Build the schedule backward from your hard date (a purchase closing or loan maturity).

1. Screening. You send a short summary; the lender says whether it fits.
2. Package. You deliver the documents listed below.
3. Term sheet. You compare offers, negotiate, sign and may pay a deposit toward third-party costs.
4. Reports and underwriting. The lender or its agent orders the appraisal, environmental and condition reports. You give site access.
5. Approval. Ask who grants final approval, which conditions remain open and whether a separate written commitment will follow.
6. Closing. Documents are signed, title and insurance clear, conditions are met and the first advance pays off any existing loan or funds the loan's share of a purchase price.
7. Draws and payoff. Held-back funds are released as work is done, and a refinance, a sale or other funds repay the loan.

How long does each stage take, and what sets the pace?

Hypothetical example: illustrative day ranges for a refinance whose loan matures on day 90, not market data.

A delivered report is not an accepted one, and funding waits for every condition. Here the cushion is days 81 to 90, and one slow appraisal can use it up.

When a date slips, get a revised schedule for every remaining stage that day and check it against maturity.

What do you need to prepare before you apply?

For screening, a one-page summary: loan amount and uses, property type, size, location, occupancy, plan, exit and guarantors.

For underwriting and closing:

• Rent roll and major leases, or for a vacant building, the leasing plan and any signed letters of intent.
• Trailing-12-month and recent full-year operating statements. Ask for the lender's checklist, since many want more than one year.
• Renovation budget, schedule and contractor bids.
• The signed purchase agreement, or for a refinance, a payoff statement for each existing loan.
• Entity documents, plus a personal financial statement and schedule of real estate owned for each guarantor.
• Insurance certificates.
• Any reports you already have (prior appraisal, Phase I environmental report, survey, title policy, property condition report).
• Exit math showing stabilized income and the loan or sale price it supports.

What should you check in a commercial real estate bridge loan term sheet?

Read first the clauses that bind on signing, such as the deposit (what it covers, when it's refundable), exclusivity, your promise to pay third-party costs, and who orders the reports.

• Rate. A floating rate names the index, the lender's spread over it, the reset schedule and any floor. Overnight SOFR was 3.88% on October 2, 2026, the latest print when checked October 5, 2026, per the New York Fed. A dated print is one observation of one index, not your loan's rate. Your documents set the benchmark (overnight SOFR, a SOFR average or a forward-looking term rate), its fixing dates, the calculation method, the spread and any floor, and together those set the rate for each interest period.
• Payments and the interest reserve. Ask whether payments are interest-only and who pays them. If a reserve does, ask how many months it covers, at what assumed rate, and what the documents require if it runs dry before the building stabilizes (a top-up, your own cash, or a default). A rate rise drains it early. Hypothetical example: on $10,000,000 drawn, with no floor or cap in play, each 1 percentage point rise in the index adds $100,000 a year.
• Payoff and extension charges. Get any exit, minimum-interest or early-payoff charge, and the cost of each extension, in writing with its formula. Each belongs in your cash and exit math. Northern Ridge Capital is paid a 1% origination fee at closing.
• Extensions. Check any coverage or debt yield test, whether a new appraisal is required, the no-default condition, any rate cap renewal, and the written notice due before maturity.
• Guarantees. A non-recourse loan still lists carve-outs, the acts that make you personally liable. Some make the loan full recourse, so you owe the whole balance. Others make you liable only for the lender's loss from that act. Check which is which, and when any completion guaranty is released.

Who orders the reports, and can you reuse an appraisal?

The 2010 Interagency Appraisal and Evaluation Guidelines cover federally regulated banks, savings institutions and credit unions. They say "An institution or its agent must directly select and engage appraisers," and a covered lender's use of a borrower-ordered or borrower-provided appraisal violates the agencies' appraisal regulations. Separately, a covered lender may use an appraisal engaged directly by another financial institution if it finds the report conforms and is otherwise acceptable, so get written acceptance before anyone commissions a second one. Other lenders set their own policy, so ask who orders each report before you pay.

On a purchase, the Phase I environmental report matters to you. Under EPA's All Appropriate Inquiries rule, completing the inquiry before you buy is one requirement for federal landowner liability protections, not protection by itself, and continuing obligations apply after you buy. A lender's Phase I is done for the lender. Under 40 CFR 312.20, a person using information someone else collected must review it and conduct the additional inquiries. Ask the consultant to name you as a user or issue a reliance letter, and have your environmental lawyer confirm what else you need.

To qualify for those protections, the inquiry must be done within one year before acquisition, and under 40 CFR 312.20(b) five parts, including owner interviews, lien searches and site inspections, must be done or updated within 180 days before it. Ask the consultant for the last closing date the report supports.

How do the funding and the exit work on paper?

Hypothetical example, round illustrative figures, not market data: an owner refinances a partly leased building and plans a renovation.

Funded from the initial advance, the reserve is part of the $10,000,000 of outstanding principal and accrues interest from closing.

If your loan uses Dutch interest, interest accrues on the entire commitment even though the money is advanced in stages, so in this example it would accrue on $12,000,000 while principal is $10,000,000. The interest formula in the signed loan documents decides whether undrawn amounts accrue interest, so read it before closing.

Draws. If only completed, inspected work is reimbursed, the owner pays a $600,000 invoice first, then submits it with lien waivers and waits for inspection and a title update.

Both exit tests below assume the interest reserve is used up by maturity and no other project cash is left to reduce the payoff. If cash remains, subtract it from the gap.

Exit test, base case. Assume the full $2,000,000 holdback is drawn, so outstanding principal at maturity is $12,000,000. Accrued interest and any exit, minimum-interest or prepayment charge are owed on top of that principal. Stabilized net operating income is projected at $1,200,000. A permanent lender requiring 1.25 times debt service coverage, with an 8% loan constant (annual debt service divided by principal), supports up to $12,000,000 on that test ($1,200,000 ÷ 1.25 ÷ 0.08), subject to its value limit and other tests. With $200,000 of new-loan closing costs, the owner needs $12,200,000, so the exit gap is $200,000 before accrued interest and payoff charges.

Exit test, downside. If income comes in at $1,100,000 instead, the same test supports $11,000,000. Against the $12,200,000 needed, the gap is $1,200,000, again before accrued interest and payoff charges.

Before you rely on either case. Both cases use your projected income. Get a preliminary written sizing from one or two permanent lenders, with the income, coverage ratio, loan constant and maximum loan to value each would apply on its own appraisal. Turn every limit into a dollar amount; the smallest sets the loan, and actual income, value, rates and full underwriting can still change it. A sale works only if net proceeds cover the full payoff.

Where does a broker fit?

Northern Ridge Capital is a debt broker, not a lender, working on loans from $5M to $30M. It prepares the package above and takes it to lenders whose programs fit; see how a broker places commercial bridge loans.

FAQ

How long does a commercial bridge loan take to close?

It depends on who holds each clock in the stage table above, so on day one ask each of them for its turnaround in writing. Then map which tasks wait on others. Add durations only along a chain of dependent steps, and where work runs in parallel, take the latest finish. In the table above, the payoff letter and loan documents both finish by day 75, so funding falls on days 76 to 80, ten days ahead of the day-90 maturity. Check that funding date against your hard date.

Does a signed term sheet mean the loan is approved?

No. Ask the lender what approval it still needs, who grants it, and which conditions must be satisfied before it funds.

What if the property isn't ready when the bridge loan matures?

Use an extension option if your documents grant one, you meet every condition and you give notice on time. Otherwise, negotiate an extension, which needs the lender's written agreement, or refinance, sell or repay from other funds before maturity. Otherwise the loan is in default, and the lender can pursue the property and any guaranty that covers that default. Start early, because the permanent loan that replaces it needs its own package, reports and approval.