Commercial Bridge Loan: How Lenders Size It, Step by Step
A commercial bridge loan is short-term debt, secured by a commercial property, that carries you through a purchase, renovation or lease-up until a permanent loan or a sale pays it off. The amount a lender will advance is generally the lowest result of the limits it applies on cost, value and income.
That last part is where owners get caught. You size the loan off one percentage, then learn at the term sheet that a different test sets the number, and the equity you need is far higher than you planned. In the hypothetical example below, the shortfall is $650,000.
Key points
- The loan is the lowest of several limits: a share of total project cost, a share of the property's value, and a minimum debt yield (net operating income divided by the loan). Run every one before you apply.
- On a purchase, the federal banking agencies' real estate lending guidelines define value as the lesser of what you pay or the appraised value, so buying below appraisal doesn't raise the value a bank applying them uses.
- Your total equity is total project cost minus the loan. Ask how much of it is due at closing before you sign a term sheet or pay a deposit.
What is a commercial bridge loan used for?
The OCC's Commercial Real Estate Lending handbook (version 2.0, March 2022) describes a bridge loan as short-term financing that lets a newly built or acquired commercial property reach stabilization. It says bridge loans "are usually written for a period of up to three years" and allow the lease-up needed for a sale or for permanent financing.
For how the closing runs, stage by stage, see the bridge loan steps and timeline.
How does a lender size a commercial bridge loan?
Use these six steps as a worksheet, filled in with the limits your lender applies to your deal. You finish with two figures, the loan and your total equity.
- Add up total project cost. On a purchase, that's the price, renovation budget, closing costs and interest reserve. On a refinance, your payoff is a use of funds, not automatically your cost basis, so ask what the lender counts as cost.
- Apply the loan-to-cost limit. Loan-to-cost divides the loan by the total cost of the property plus all construction costs.
- Apply the loan-to-value limit on today's value.
- Apply the limit on the as-stabilized value, the appraiser's estimate of value once the property is projected to reach stabilized occupancy.
- Run the income test. Debt yield is net operating income divided by the loan. Ask whether the lender's minimum applies to current income, projected income, or both.
- Take the smallest result. Total project cost minus that figure is your total equity.
Each lender sets its own percentages. Banks set internal loan-to-value limits that should not exceed the federal supervisory limits, which the OCC handbook says "do not establish a safe harbor," and non-bank lenders write their own. Ask every lender for each limit in writing, as a dollar amount on your deal.
Which value counts: today's or the stabilized one?
Ask which value each limit uses, because a lender can apply different percentages to each. Under the Interagency Appraisal and Evaluation Guidelines, a bank should understand the "as is" value and "should consider the prospective market value that corresponds to the credit decision and the phase of the project." Those prospective values "should be based upon current and reasonably expected market conditions."
On a purchase, your price can cap the value a bank uses. The FDIC's copy of the lending guidelines, 12 CFR Part 365, Appendix A, says that for loans to purchase an existing property, value "means the lesser of the actual acquisition cost or the estimate of value." Hypothetical example: you pay $10,000,000 for a building that appraises at $10,500,000, and a bank applying that rule sizes off $10,000,000.
The stabilized value depends on your existing leases, the leasing you project, expected expenses and the appraiser's valuation assumptions, including the capitalization (cap) rate used to convert net operating income into value. The OCC handbook notes that rising rates "may lead to higher capitalization rates and lower property values without any change to the actual property's fundamentals." Bring rent comparables, signed letters of intent and a leasing plan that support your projected income.
How much equity will you need to bring?
Hypothetical example, round illustrative figures, not market data or any lender's terms: you buy a partly vacant building and renovate it.
| Line | Amount |
|---|---|
| Purchase price | $10,000,000 |
| Renovation budget | $2,000,000 |
| Origination fee (1% of the $9,100,000 loan) | $91,000 |
| Other closing costs | $209,000 |
| Interest reserve | $700,000 |
| Total project cost | $13,000,000 |
Now the lender's tests, again illustrative. A limit on today's value can also cap what funds at closing; it isn't modeled here.
| Test | Limit | Result |
|---|---|---|
| Loan-to-cost | 75% of $13,000,000 | $9,750,000 |
| As-stabilized loan-to-value | 65% of a $14,000,000 stabilized value | $9,100,000 |
| Stabilized debt yield | $950,000 projected annual net operating income divided by a 10% minimum debt yield | $9,500,000 |
The smallest result, $9,100,000, is the illustrative ceiling under the tests modeled here. Your total equity is $13,000,000 minus $9,100,000, or $3,900,000. If you had planned on the loan-to-cost figure alone, you would have budgeted $3,250,000 and come up $650,000 short.
That total isn't your closing wire. If renovation dollars or the interest reserve fund later, or you've already put money in, the lender's funding terms set what's due at closing. Ask for a sources-and-uses that shows it.
Here, a lender offering 80% loan-to-cost changes nothing, because the stabilized value test is lower. Then check that a permanent loan at stabilization covers the full payoff, as walked through in refinance or bridge: how to decide.
What else does the lender check before it commits?
The tests above give you a preliminary sizing, which can change once a lender underwrites the deal. For renovation and repositioning loans, the OCC handbook names what underwriters weigh.
- Your track record. "An evaluation of the borrower's track record with similar properties should be a critical consideration." List comparable properties you've owned or repositioned, with dates and results.
- The budget. The bank "typically obtains an independent evaluation of the budget's adequacy from a qualified engineer or architect." Bring a line-item budget, contractor bids and a schedule.
- Your assumptions. For bridge loans, "Income and value assumptions should be well supported and carefully analyzed." Show the source for every rent and expense you project.
- Tests after closing. Covenants may include debt yield, debt service coverage, loan-to-value, loan-to-cost and a minimum net worth or liquidity. Ask which apply, how often they're tested and what a miss triggers under your documents.
Are banks tightening commercial real estate lending right now?
In the Federal Reserve's October 2026 Senior Loan Officer Opinion Survey, banks "reported having tightened, on net, lending standards for all commercial real estate (CRE) loan categories" and reported weaker demand for all of them. It measures the direction of change at responding banks, not its size, and it doesn't cover non-bank lenders. Run your sizing early and get quotes from more than one type of lender.
How do you get a commercial bridge loan sized before you commit?
Northern Ridge Capital is a debt broker, not a lender, working on commercial bridge loans from $5M to $30M. It prepares your package and takes it to lenders whose programs fit, so you can compare each lender's limits on the same deal. Start with a one-page summary: property, price or payoff, budget, current and projected income, and your exit. Then open how Northern Ridge Capital places commercial bridge loans and use its "submit your deal" link to send that summary.
FAQ
How much can you borrow on a commercial bridge loan?
Whichever of the lender's limits on cost, value and income comes out lowest on your deal. Compare lenders on that limit.
How long does a commercial bridge loan last?
The OCC handbook says bridge loans are usually written for up to three years, long enough for lease-up and stabilization before a sale or a permanent loan. Any extension option, its conditions and its notice deadline are set by your loan documents.
Does a higher appraisal let you borrow more on a purchase?
At a bank applying the federal lending guidelines, only up to your price, because value on a purchase is the lesser of acquisition cost or appraised value. A higher appraisal raises the value used only if an earlier one came in below the price. A non-bank lender may use its own rule, so ask.
What does "as-stabilized" value mean?
The OCC handbook defines it as the property's market value "as of the time the property is projected to achieve stabilized occupancy."