What is a bridge loan? Your speedy solution to cash flow By Jake Yuskaitis, Co-Founder of Frontier Funding LLC

A bridge loan, often referred to as interim financing or gap financing, is a short-term loan designed to provide quick funding until a borrower secures long-term financing or completes an asset sale. This type of financing is commonly used in real estate and business to “bridge” the gap between immediate financial needs and future funding. This article explores the essentials of bridge loans, their applications, benefits, and considerations.

Typically, bridge loans have terms ranging from 6 to 24 months, making them ideal for situations where timing is critical. For instance, in real estate, an investor may use a bridge loan to purchase a new property for a fix and flip. Similarly, businesses may rely on bridge financing to cover operational expenses while awaiting the closure of a larger funding round or asset sale. The flexibility of bridge loans makes them a valuable tool for both individuals and companies navigating transitional periods.

Bridge loans are secured by collateral, often the property being purchased or the borrower’s existing assets. In real estate, a bridge loan enables buyers to quickly acquire a property, often bypassing Debt Service Coverage Ratio (DSCR) requirements, which measure a property’s ability to cover loan payments. Once the property is stabilized, the borrower can refinance it into a longer note.

Bridge loan rates tend to be a higher rate than traditional loans due to their short-term nature and the risks involved. Interest rates typically range from 8% to 15%, depending on the lender, borrower’s creditworthiness and experience, and market conditions. Additionally, bridge loans often come with origination fees and other closing costs, which borrowers must factor into their financial planning.

Bridge loans offer several advantages. First, they provide quick access to capital, enabling borrowers to act quickly in time-sensitive situations. Second, they offer flexibility, allowing borrowers to tailor repayment terms to their specific needs. Third, bridge loans can prevent missed opportunities, such as losing an investment opportunity or a lucrative business deal. For real estate investors, bridge financing facilitates property flips or renovations, enabling them to maximize returns.

Despite their benefits, bridge loans carry risks. High bridge loan rates and fees can strain budgets if repayment is delayed. Borrowers must have a clear exit strategy, such as selling a property or securing long-term financing, to avoid default. Additionally, since not all lenders offer favorable terms, borrowers should compare options carefully. Working with reputable lenders and understanding the loan terms are critical to avoiding financial pitfalls.

Bridge loan lenders include traditional banks, credit unions, private lenders, and online financing platforms. Each offers different rates, terms, and eligibility criteria. Borrowers should research lenders, compare bridge loan rates, and review customer feedback to find a reliable partner. Online tools and mortgage brokers can also simplify the process of identifying suitable lenders.

My final thoughts

A bridge loan is a powerful financial tool for addressing short-term funding needs in real estate and business. Whether used as interim financing or gap financing, it provides the liquidity needed to navigate transitions. However, high costs and risks require careful planning and a solid repayment strategy. By understanding how bridge loans work and choosing the right broker, borrowers can leverage this financing option to achieve their goals efficiently.

About the Author

Jake Yuskaitis is a former US Marine and the Co-founder of Frontier Funding.

Jake Yuskaitis, a former US Marine Corps Infantryman, transitioned into the financial services industry as a loan officer, where he quickly rose to lead a team of professionals. His top priority has always been to serve borrowers with dedication, prioritizing their needs and delivering exceptional, client-focused service.

About Frontier Funding

Frontier Funding was founded by two seasoned professionals with extensive experience in real estate financing, Frontier Funding understands the unique challenges and opportunities in the Private Money lending space. We have built a culture that reflects our core values in all our services.

At Frontier Funding, our mission is to provide real estate investors with a reliable solution for all their lending needs. With a wide range of funding options, we ensure that every loan is met with the right solution—giving investors the confidence to count on us.