Jakie Phifpher 
Rehab and Bridge Financing Guide for Commercial Real Estate
Whether you are renovating a distressed property, closing a time-sensitive acquisition, or repositioning a commercial asset before securing permanent financing, rehab and bridge loans are among the most powerful tools available to small and medium-sized business owners. Understanding how these short-term financing products work — and when to use them — can mean the difference between seizing an opportunity and watching it pass you by.
This guide breaks down everything you need to know: how rehab and bridge loans are structured, what they cost, how to qualify, and how they compare to longer-term commercial financing options.
What Is a Bridge Loan?
A bridge loan is a short-term commercial loan designed to "bridge" the gap between an immediate financing need and a longer-term solution. Typical bridge loans carry terms of 6 to 24 months, and they are commonly used when:
- A borrower needs to close quickly before permanent financing is arranged
- A property does not yet qualify for conventional financing due to low occupancy or deferred maintenance
- A business owner is waiting on the sale of another asset to generate capital
- A value-add investor needs to stabilize a property before refinancing
Bridge loans are typically interest-only during their term, which keeps monthly cash outlays manageable while the underlying property or business situation improves.
A Real-World Example
Imagine a restaurant owner who identifies a vacant retail building at a below-market price. The property needs $180,000 in renovations before it can operate. A conventional lender will not approve a mortgage on a property in that condition. A bridge loan allows the owner to purchase and renovate the building, then refinance into a permanent commercial mortgage once the property is stabilized and generating income. For a closer look at how this process works in time-sensitive situations, see Bridge Loans Explained: The 24-Hour Solution for Time-Sensitive Opportunities.
What Is a Rehab Loan?
A rehab loan — sometimes called a renovation loan or construction-to-permanent loan — provides funding specifically for purchasing and improving a property. Unlike a bridge loan, which is broadly structural, a rehab loan ties disbursements directly to the renovation timeline.
Funds are typically released in draws as milestones are completed and verified by an inspector or lender representative. This structure protects both the lender and the borrower by ensuring money is used as intended.
Common Uses for Rehab Loans
- Gut renovations of older commercial buildings
- Converting mixed-use or residential properties to commercial use
- Upgrading mechanical, electrical, and plumbing systems in income-producing properties
- Bringing properties up to ADA or local building code compliance
Bridge vs. Rehab: Key Differences
| Feature | Bridge Loan | Rehab Loan |
|---|---|---|
| Primary purpose | Short-term gap financing | Purchase + renovation funding |
| Draw structure | Lump sum or partial | Milestone-based draws |
| Typical term | 6–24 months | 12–36 months |
| Interest structure | Interest-only | Interest-only on drawn balance |
| Exit strategy | Refinance or sale | Permanent mortgage or sale |
Both products serve overlapping needs, and many lenders — including Indymae — structure hybrid products that combine bridge and rehab features into a single loan facility.
How Bridge and Rehab Loans Are Priced
Because these loans carry higher risk than stabilized commercial mortgages, their rates are higher. Pricing is typically tied to a benchmark rate — most commonly the Wall Street Journal Prime Rate, which currently stands at 6.75% — plus a spread that reflects the lender's risk assessment.
For reference, here is a general range of what borrowers can expect:
- Bridge loans (stabilized collateral): Prime + 2.5% to 4.5% → roughly 9.25%–11.25% APR
- Rehab/construction loans: Prime + 3.5% to 5.5% → roughly 10.25%–12.25% APR
- Hard money bridge loans (distressed collateral): 10%–14%+ APR, plus origination points
If you are weighing your options, Hard Money vs Bridge Loans: Which Is Right for Your Deal? offers a detailed side-by-side breakdown to help you decide which structure fits your deal.
Most bridge and rehab lenders also charge origination fees of 1% to 3% of the loan amount, along with inspection fees, draw fees, and closing costs. A $500,000 rehab loan with a 2-point origination fee adds $10,000 to your upfront cost — factor this into your deal analysis from day one.
Qualifying for a Bridge or Rehab Loan
Qualification criteria for bridge and rehab loans differ meaningfully from conventional commercial mortgages. Lenders focus heavily on:
The Asset and Exit Strategy
Lenders want to understand exactly how the loan will be repaid. A credible, documented exit strategy — such as a signed refinance commitment, a letter of intent from a buyer, or a demonstrated path to property stabilization — is essential. Properties in strong markets with clear comparable sales or rental data will receive better terms.
Loan-to-Value (LTV) and Loan-to-Cost (LTC)
Bridge lenders typically lend up to 65%–75% of the as-is value or up to 80%–85% of the total project cost (LTC), whichever is lower. For example, on a project where the purchase price is $400,000 and renovations total $200,000 (total cost: $600,000), an 80% LTC loan would provide up to $480,000.
Borrower Financial Profile
While bridge and rehab loans are more asset-driven than income-driven, lenders still review:
- Personal and business credit scores (650+ is typically a minimum; 700+ is preferred)
- Liquidity and cash reserves (most lenders want to see 6–12 months of reserves)
- Prior experience with similar projects
- Existing debt obligations and overall leverage
For a full overview of what lenders expect before approving short-term commercial financing, see How to Qualify for a Bridge Loan: A Business Owner's Guide.
According to the Federal Reserve's Senior Loan Officer Opinion Survey, commercial real estate lending standards have tightened in recent years, making strong documentation and a clear business plan more important than ever.
SBA Financing and Commercial Real Estate
For business owners who occupy at least 51% of their commercial property, SBA loans can provide longer-term, lower-cost alternatives to bridge financing once a property is stabilized. Standard SBA 7(a) loans offer guarantees of up to 85% on loans of $150,000 or less, and up to 75% on loans exceeding $150,000, with current rates in the range of approximately 9.0%–9.5% APR.
Important: SBA loans require that applicant businesses and all owners be organized and operating in the United States, and all owners and guarantors must maintain a primary U.S. residence. Businesses with delinquent federal debt, open federal tax liens, or a prior loss to the federal government are not eligible. Visit SBA.gov for complete program guidelines and eligibility requirements.
Bridge financing can serve as a strategic on-ramp to SBA financing — use a bridge loan to acquire and stabilize a property, then exit into an SBA-backed permanent mortgage at more favorable long-term rates. For a deeper look at planning that transition effectively, Bridge Loan Exit Strategies for Commercial Real Estate Owners outlines the most common paths borrowers use to move from short-term to permanent financing.
Tips for Structuring a Winning Deal
- Know your numbers before you apply. Build a detailed project budget with a 10%–15% contingency buffer for unexpected costs.
- Line up your exit before you close. Speak with your permanent lender before drawing on your bridge loan so you are not scrambling at maturity.
- Choose experienced partners. Work with a contractor who has completed similar commercial projects and can meet draw inspection requirements.
- Negotiate the extension option. Rehab projects frequently run over schedule. Ask your lender upfront whether a 3- to 6-month extension is available and at what cost.
- Understand prepayment terms. Some bridge loans include prepayment penalties even for short payoff windows — read the fine print.
Ready to Finance Your Next Commercial Project?
Rehab and bridge loans are powerful tools when used strategically — but choosing the right lender matters as much as choosing the right product. At Indymae, our commercial lending specialists work directly with small and medium-sized business owners to structure bridge and rehab financing that fits your project timeline, budget, and long-term goals.
Contact Indymae today to discuss your commercial real estate financing needs and get a no-obligation loan review from a team that understands what it takes to close complex deals efficiently.
