Bridge Loans vs. Hard Money Loans: Which Fits Your Commercial Deal?
When a commercial opportunity has a deadline, conventional bank financing is often too slow. An acquisition with a short closing window, a balloon note coming due, or a property that needs work before it qualifies for permanent financing all call for short-term capital. The two tools Clients ask about most in these situations are bridge loans and hard money loans.
The terms are sometimes used interchangeably, and the two products do overlap. They are not the same, however, and choosing the right one can affect your cost, your leverage, and how quickly you close. This guide explains how each works, where they differ, and how to decide which fits your transaction. At Commercial Funding International (CFI), we arrange both bridge loans and hard money loans of $1M and larger for qualified Clients and brokers.
What Is a Bridge Loan?
A bridge loan is short-term financing used until permanent financing is secured or the collateral is sold. It “bridges” the gap between an immediate need and a longer-term solution, giving the borrower time to stabilize a property, complete a transaction, or arrange lower-cost financing.
Bridge loans are commonly used for acquisitions, buy-outs, foreclosures, cash-out needs, and construction. Typical uses include:
- Quick-close acquisitions and business mergers
- Partner or equity buyouts and partnership disputes
- Rehabilitation and renovation
- Refinancing a balloon note that is coming due
- Foreclosure avoidance, bank workouts, and debt restructuring
- Sale-leasebacks and bankruptcy resolutions
- Tax lien and judgment payoffs
How CFI’s Bridge Loan Sources Work
CFI’s national, private bridge loan lenders focus on Clients with an urgent need for funding in the range of $1M to $50M. Terms generally run from 1 to 12 months, and extensions are possible up to 36 months, with extension options that include rate step-ups and extension fees. Our lending sources aim to respond quickly and to fund within 30 days of receipt of an executed Letter of Interest.
Bridge lenders underwrite heavily around the exit strategy. One of our sources considers the full “story” of a transaction rather than relying only on rigid formulas. If the lender is comfortable that the Client can repay at maturity, it may finance up to 90%, depending on the situation and property type. Rates vary and are most often floating, and, as you would expect, the higher the leverage, the higher the rate.
What Is a Hard Money Loan?
Hard money is privately held capital lent outside the conventional banking system. Because it is not encumbered by the extensive regulations and processes of government-backed conventional loans, hard money can close quickly with few obstacles.
Hard money is typically provided by real-estate-savvy investors who are seeking a greater return on their capital than conventional investments offer. The loan is secured primarily by a tangible property and its equity, which is why hard money lenders focus first on the asset rather than the borrower’s credit history.
How CFI’s Hard Money Sources Work
CFI’s hard money sources consider a wide range of purposes, including acquisition, development, gap and interim financing, mezzanine financing, raw land, construction, refinance, equity recapture, pending foreclosure, project rescue, and borrowers with credit challenges. The general parameters our sources work with are:
- Loan amount: $1M to $50M per project
- Timing: Loan decisions can typically be made within 24 hours of receiving the items underwriting requires; after approval, and depending on the attorney’s time to draw up the loan agreement, funding can occur within 3 to 7 days or longer
- Loan term: 1 to 12 months or longer
- Loan to value: 50% or more, depending on the asset and collateral
- Cost: Interest from 13% to 20%, with 6 to 10 points, depending on the property, the borrower’s credit, and the loan amount
Final terms always depend on the business analysis, the overall risk assessment, and the strength of the project and its Principals.
Bridge Loans vs. Hard Money: Key Differences
Both products are short-term, asset-focused, and faster than a bank. The differences are in emphasis.
Underwriting Focus
A bridge loan is underwritten around the deal and its exit: property type, cash flow predictability, sponsorship, loan-to-value, debt service coverage, the security interest, and how the lender will be repaid at maturity. Hard money is underwritten primarily around the collateral and its equity. That makes hard money more forgiving of credit problems, late payments, or a pending foreclosure.
Speed
Both are designed for speed. Hard money is usually the fastest option when the clock is the deciding factor, with loan decisions possible within a day of receiving the required documentation. Bridge financing is also quick by commercial standards, but its deeper review of the exit strategy can take somewhat longer.
Leverage
Because bridge lenders look closely at the exit and the overall story, they may offer higher leverage on a strong transaction, up to 90% in some situations. Hard money leverage is driven by the asset’s equity and is generally more conservative.
Cost
Both carry a premium over permanent financing; that premium is the price of speed and flexibility. Hard money is generally the more expensive of the two, reflecting its higher risk tolerance and faster turnaround. For either product, you should be confident that the return or gain from the transaction will outweigh the financing cost.
Term and Extensions
Both are typically structured for about 1 to 12 months. Bridge loans more commonly include built-in extension options, which can matter if your stabilization or sale timeline is uncertain.
Which One Fits Your Deal?
There is no single right answer, but these guidelines help:
- Choose a bridge loan when you have a credible, well-documented exit, such as a refinance into permanent financing or a planned sale, and you want higher leverage or the flexibility of extension options.
- Choose hard money when speed is critical, when credit history or a distressed situation would stall other lenders, or when the property’s equity is the strongest part of the request.
- Consider other structures when the project needs more than short-term debt. A longer-horizon project may be better served by an asset-based loan, a joint venture partner who contributes capital, or 100% LTC financing for qualified developments.
Short-term debt also appears inside larger projects. In our guide on how to finance a mining project, for example, we note that a bridge loan can sometimes cover a time-sensitive gap during permitting and pre-development, provided there is a clear path to longer-term financing.
Why the Exit Strategy Matters Most
Whichever product you pursue, the exit strategy is the heart of a short-term loan request. A lender providing capital for 6 or 12 months needs to understand exactly how it will be repaid. A strong request states the exit plainly, whether a refinance, a sale, or a recapitalization, along with the timeline, the assumptions behind it, and a backup plan if the primary exit is delayed.
How to Prepare Your Request
Short-term lenders move fast, and they move fastest on requests that are organized. Start with a concise Executive Overview of 1 to 5 pages that covers:
- The amount requested and the use of funds
- The property or collateral, its value, and existing debt
- Your equity in the transaction
- The timeline and why speed matters
- The exit strategy and repayment source
- The experience of the Principals
For a step-by-step guide, see our article on how to write a commercial loan executive summary, and review The Process to see how CFI moves a request forward.
Frequently Asked Questions
Is a hard money loan the same as a bridge loan?
Not exactly. Hard money can be used as bridge financing, but the terms describe different emphases. A bridge loan is short-term financing underwritten around the transaction and its exit, while hard money is private capital underwritten primarily around the collateral and its equity.
Which is faster, a bridge loan or hard money?
Hard money is usually faster. CFI’s hard money sources can typically make a loan decision within 24 hours of receiving the required documentation, with funding possible in 3 to 7 days or longer after approval. CFI’s bridge loan sources aim to fund within 30 days of an executed Letter of Interest.
How long do bridge loans and hard money loans last?
Both are typically structured for about 1 to 12 months. CFI’s bridge loan sources may offer extensions up to 36 months, with rate step-ups and extension fees.
Can I get a hard money loan with poor credit?
Often, yes. Because hard money is secured primarily by the property and its equity, credit challenges are not necessarily a barrier, and all requests are considered. The rate and terms will reflect the overall risk.
What loan sizes does CFI arrange for bridge and hard money loans?
CFI’s bridge loan and hard money sources generally work with requests from $1M to $50M per project. CFI works on funding requests of $1M and higher overall, with a specialized focus on requests of $25M to $500M and larger.
Do you accept bridge and hard money requests from brokers?
Yes. Broker inquiries are welcomed and appreciated.
Ready to Discuss Your Short-Term Financing?
If you have a time-sensitive commercial opportunity, the first step is the same whether you need a bridge loan or hard money. Email us a 1 to 5 page Executive Overview or call our office to discuss your transaction. Visit our bridge loans and hard money loans pages or contact Commercial Funding International today.
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