Rehab & Bridge Financing Guide for Commercial Real Estate

Whether you're flipping a distressed office building, stabilizing a mixed-use property before a permanent loan, or racing to close before a competing buyer steps in, rehab and bridge financing can be the difference between landing the deal and losing it. These short-term, asset-backed loan products are purpose-built for speed and flexibility — two qualities that conventional bank loans rarely deliver.

This guide breaks down how rehab loans and bridge loans work, how they differ, what they cost, and how to qualify — so you can walk into your next deal with a clear financing plan.

What Are Bridge Loans and Rehab Loans?

Bridge loans are short-term commercial loans — typically six to thirty-six months — designed to "bridge" the gap between an immediate capital need and a long-term financing solution. Common scenarios include:

  • Acquiring a property before your existing asset sells
  • Stabilizing occupancy before qualifying for a conventional or agency loan
  • Funding a value-add project while awaiting permanent financing approval

Rehab loans (also called fix-and-flip or renovation loans in commercial contexts) are a specialized subset of bridge financing. They provide funds not just for acquisition but also for the cost of construction draws as renovation milestones are completed. Lenders release funds in tranches tied to verified progress, reducing their exposure at each stage.

Key Differences at a Glance

  • Bridge loan: Lump-sum at closing; best for stabilization or quick acquisitions
  • Rehab loan: Acquisition funds at closing + draw schedule for renovation; best for distressed or value-add assets
  • Loan term: Both typically range from 6 to 24 months, with extension options
  • Exit strategy: Both require a defined payoff plan — refinance, sale, or permanent takeout

How Bridge and Rehab Loan Pricing Works

Because these loans carry higher risk than stabilized commercial mortgages, the pricing reflects that. Understanding the components helps you model your deal accurately.

Interest Rates

Bridge and rehab loans are almost always floating rate products tied to a benchmark index. With the WSJ Prime Rate currently at 6.75% (as of June 2026), typical commercial bridge loan spreads land you in the following range:

  • Light bridge (stabilized asset, quick close): Prime + 1.50%–2.50% → approximately 8.25%–9.25% APR
  • Value-add bridge (moderate rehab): Prime + 2.50%–4.00% → approximately 9.25%–10.75% APR
  • Heavy rehab (significant construction): Prime + 4.00%–6.00% → approximately 10.75%–12.75% APR

For reference, SBA 7(a) loans over $350,000 are currently priced at Prime + 2.25%–2.75%, or roughly 9.0%–9.5% APR — a useful benchmark when evaluating whether SBA loans could serve your project instead.

Fees to Budget For

  • Origination fee: 1%–3% of the loan amount
  • Exit fee: 0.5%–1.5%, paid at payoff
  • Draw inspection fees: $150–$500 per inspection (rehab loans) — see our guide on bridge loan terms and fees for more detail
  • Extension fee: 0.25%–1.0% per extension period

Practical Example

You acquire a 10,000-square-foot retail strip for $1,200,000 with a $300,000 renovation budget. A lender offers a rehab bridge loan at 70% of the After-Repair Value (ARV) of $2,100,000, giving you up to $1,470,000 in proceeds. After covering acquisition and rehab costs, you have room to cover carry costs and fees. Your exit: refinance into a conventional commercial mortgage once the property reaches 90% occupancy.

Loan-to-Value, ARV, and Underwriting Standards

Lenders underwrite bridge and rehab loans primarily on the collateral value of the property, not just your income or credit score. That said, credit and liquidity still matter.

Loan-to-Value (LTV) and Loan-to-Cost (LTC)

  • LTV on current "as-is" value: Most lenders cap at 65%–75%
  • LTV on ARV: Most lenders cap at 70%–75%
  • LTC (loan-to-total-project-cost): Typically capped at 80%–85% for rehab deals

Borrower Qualifications

  • Credit score: Most private bridge lenders require a minimum of 620–660; bank programs may require 680+
  • Liquidity reserves: Lenders typically want to see 6–12 months of interest payments in reserves
  • Experience: Rehab lenders heavily weight your renovation track record — see our article on how to qualify for a bridge loan for practical tips
  • Entity structure: Most lenders require borrowing through an LLC or other business entity
  • Exit strategy documentation: You must present a credible, specific payoff plan

What Disqualifies You

Regardless of loan type, certain conditions are automatic disqualifiers with most regulated lenders:

  • Open federal tax liens on the property or business
  • Delinquent federal debt owed by the borrower or guarantors
  • Active bankruptcy proceedings

These same conditions disqualify borrowers from SBA-guaranteed programs entirely, per SBA guidelines. Always resolve federal obligations before pursuing any commercial financing.

When to Use Bridge Financing vs. SBA or Conventional Loans

Choosing the right product starts with matching your timeline and property status to the loan structure.

Use Bridge or Rehab Financing When:

  • The property is vacant, distressed, or below market occupancy (most conventional lenders won't touch sub-85% occupancy)
  • You need to close in 10–21 days — bridge lenders routinely hit this window
  • Your project requires construction draws tied to a renovation schedule
  • You plan to refinance or sell within 12–24 months

If you're weighing alternatives, our comparison of hard money vs bridge loans explains where private hard-money financing fits versus bridge products.

Consider SBA 7(a) When:

  • You're acquiring an owner-occupied commercial property
  • Your business is stable and cash-flow positive
  • You want a longer amortization (up to 25 years for real estate) at a regulated rate
  • You have time for a 30–90 day underwriting process

Consider Conventional Commercial Mortgages When:

  • The property is fully stabilized with strong in-place cash flow
  • You qualify for a DSCR of 1.25x or better
  • You want fixed-rate certainty over a 5–10 year term

Managing the Draw Process on a Rehab Loan

The construction draw schedule is the operational heart of a rehab loan. Mismanaging it is the most common reason projects stall.

How Draws Typically Work

  1. Loan closes — acquisition funds are released; rehab funds sit in a lender-controlled escrow or holdback account
  2. Work is completed for a defined milestone (e.g., demo and framing finished)
  3. Borrower submits a draw request with contractor invoices and lien waivers
  4. Lender sends an inspector to verify completion — usually within 3–5 business days
  5. Funds are released — typically within 24–72 hours of inspection approval

Tips to Keep Draws Moving

  • Maintain organized contractor documentation — invoices, signed contracts, lien waivers
  • Build a 10%–15% contingency into your rehab budget before closing
  • Communicate proactively with your lender about timeline changes
  • Understand your draw frequency limits — many lenders cap draws at once or twice per month

For additional operational guidance, see our piece on bridge loan interest reserves and how projects that outgrow short-term rehab financing can transition into construction to permanent loans for longer-horizon builds.

Getting Started With Indymae

Navigating short-term commercial financing is faster and less stressful when you work with a lender who understands the full deal lifecycle — from acquisition through renovation and into permanent takeout. Indymae works with small-to-medium business owners and commercial real estate investors across a range of bridge and value-add financing scenarios, structuring solutions that align with your exit strategy and project timeline.

Ready to move on your next deal? Connect with the Indymae lending team today to discuss your project, get a rate indication, and find out how quickly we can get you to the closing table. Visit indymae.us to get started.