Debt and alternative financing
How does a bridge loan work for a real estate deal?
Short answer
A bridge loan is short-term money that covers a gap in a real estate deal. A lender advances cash against a property for a limited term. The borrower pays interest, then repays the loan with a permanent loan, a sale, or other planned capital. The exit plan is one of the main things a lender looks at. Many borrowers talk through the terms with a securities attorney and their lender.
The basic pattern of short money for a longer plan
A lender advances cash against a property for a short term, often a year or a few years. The borrower pays interest, and often fees. Then the loan gets paid off when a permanent loan funds, the property sells, or the project reaches the stage the lender wanted. Terms vary a lot from deal to deal, so I treat any rate or term as specific to that deal.
The idea is easy to see in a non-property example I have lived through.
In this clip I explain how we used notes to bridge a company to a larger debt facility.
Over about three months, we put around a million and a million one in notes into a company. That bridged them to a $20 million debt facility that was about to close. It was not a real estate loan, but the mechanics are the same. Short money carries you to the longer money.
What a lender wants to see before it funds
A bridge lender looks at the property and at the people. Someone in one of my hot seat sessions asked about a $6 million bridge loan for an assisted living building in Florida. I told them lenders often start with the pitch deck, then ask questions by email and on a call. After that, they may ask for a data room or want to tour the building in person.
"they might want background checks on the executives, but also just confirm who holds title and whether there are other liens on the property."
This clip covers the due diligence a bridge or hard money lender may run on a real estate borrower.
Summary and key takeaways from this video
I also pointed out that a lender can be in first position and still have trouble. Other liens, judgments or title problems can complicate a closing. We have a billion dollar group in our community that does hard money and bridge lending. John, its founder, has run it for 30 years, so I offered to pass deal flow to him.
Where bridge loans go wrong
The common failure is a bridge the property cannot carry. Carlos, who invests in real estate, said a value add deal with a three-year bridge loan that cannot be serviced currently makes him look first at the sponsor's judgment and how they view risk.
Carlos explains how he reacts to a weak bridge structure and how he would restructure the deal.
Summary and key takeaways from this video
If the deal is good, he may suggest putting 40% or 50% down instead of 20%, then adding a perm loan that can be resized. His priorities are capital preservation first, then yield, then upside. I like that order because it keeps the exit in front of everything else.
- What is the exit, and who will actually fund it?
- Can the property cover the interest during the term?
- Who holds title, and are there other liens or judgments?
- What happens if the permanent loan closes late?
Lending terms differ by deal, so many borrowers talk through the structure with a securities attorney and their lender before they sign anything.
What I have said on this at our events
When I raise capital for a real estate deal and I'm only pitching real estate families, I can use very sophisticated terms, especially if they have a full family office team. That matters for a bridge loan too. A family with its own real estate staff will read the loan terms, the exit plan and the lien position line by line. So I match the way I present the deal to who is reading it, and I put the repayment plan up front.
"if you're only pitching to real estate families and you're raising capital for a real estate deal, then you can use very sophisticated terms, especially if they have a full family office team."
Facts from this talk
- We put about a million and a million one in notes over three months to bridge a company to a $20 million debt facility.
- A hot seat question described a $6 million bridge loan request for an assisted living building in Florida.
- Carlos suggested 40% or 50% down instead of 20% on a deal with a weak bridge structure.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Top 3 Insights on Structuring Investments - PODCAST - Family Offices & Family Office Club, Capital Raising Hot Seats: Pitch Decks, Structures & Investor Relations with Richard C. Wilson, Creative investment structures: Co-GP, Seed, Anchor investor, JV & Other Innovative Approaches to.... Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around loan documents and terms, lien and title issues and offering structure. Do not use AI to write your own legal agreements.
Your next steps
- Write down the exit plan before you ask for a bridge loan.
- Test whether the property can cover interest during the full term.
- Consider ordering a title search and listing every lien or judgment.
- Build a pitch deck and a data room so a lender can verify your story.
- Talk through the structure with a securities attorney and your lender.
Follow-up questions
Is a bridge loan the same as a hard money loan?
They overlap but are not always the same. Both are short-term and asset-backed, and some lenders do both. I know one group in our community that does hard money and bridge lending.
What does a bridge lender usually ask for?
In my experience, they ask for the pitch deck, then a call, then a data room. They may also want to tour the property and check who holds title.
Why do some investors avoid bridge loans on value add deals?
Carlos told us a three-year bridge loan that cannot be serviced currently is a red flag. He looks first at the sponsor's judgment on risk.
Related questions
- What is venture debt and who qualifies for it?Venture debt is a loan made to a venture-backed company, usually alongside or after an equity round.
- How does asset-based lending work for growing companies?Asset-based lending is a loan secured by company assets such as receivables, inventory or equipment.
- What is mezzanine financing and when should I use it?Many sponsors look at mezzanine financing when senior debt does not cover the whole gap and they want to avoid selling more equity.
- How do I raise private credit for my business?Start by deciding which side of private credit you need.
Work through it with the investor meeting follow-up checklist. See all debt and alternative financing resources.