A bridge loan is a short-term loan, typically taken out for a time frame ranging from 2 weeks to 3 years pending on the arrangement of a larger or longer term loan.

Bridge loans are often used for commercial purchases to quickly close, prevent a foreclosure sale, or take advantage of a short-term opportunity in order to secure long term financing. These loans are typically more expensive than conventional mortgages because of the higher interest rate, points and other costs that are amortized over a shorter period of time.

The interest rates for the bridge loan are usually between 12-15%, with terms of up to 3 years, with 2-4 points charged. The loan to value generally does not exceed 65% for commercial properties, based on the appraised value.

An example of a bridge loan is: A developer who is carrying a project while permit approvals are sought. Since there is no guarantee the project will happen, the loan will have a higher interest rate and need to be accepted by a specialized lending source that is willing to accept the risk. Once the project is fully entitled it becomes eligible for the loans from a conventional lender that is at a lower interest rate, for a longer term, and in a greater amount. A construction loan would have to be obtained to take out the bridge loan and fund the completion of the project.