Both bridge loans and construction loans are short-term, interest-only financing products in commercial real estate. They look similar on paper — both run 12 to 24 months, both charge in the high single digits to low double digits — but they fund fundamentally different stages of a project.
Bridge loans: financing existing structure
A bridge loan is used when there is already a building standing. You're buying it, refinancing it, repositioning it, or stabilizing it. The loan is sized against the property's current value (LTV up to 75–80%) and underwritten on the as-is condition plus a clear exit strategy.
Typical bridge use cases: distressed acquisition, bridge to permanent refinance, recap or DPO, light-to-medium value-add where the property is occupied and producing some income, time-sensitive opportunistic purchases.
Construction loans: financing the build itself
A construction loan funds the actual construction or heavy renovation. Proceeds are released in draws — typically 5 to 8 milestones tied to inspections — rather than at closing. Interest accrues only on the drawn balance, which is why construction loans usually include an interest reserve at closing to fund payments before the property is income-producing.
Typical construction use cases: ground-up multifamily, mixed-use, or commercial development; heavy gut rehab where the structure is being modified significantly; build-for-rent communities; spec residential builds; adaptive reuse projects.
Side-by-side comparison
- Bridge LTV: up to 80% of as-is value · Construction LTC: up to 85% of total project cost
- Bridge close: 7–10 business days · Construction close: 3–4 weeks (more diligence, draw schedule negotiation, contractor review)
- Bridge funding: full amount at closing · Construction funding: draws against completed work
- Bridge rate: 8–12% · Construction rate: 9–13% (extra risk premium for build-out)
- Bridge appraisal: as-is value only · Construction appraisal: as-is + as-complete + stabilized rent comps
- Bridge underwrite: asset + exit · Construction underwrite: asset + sponsor + GC + budget + schedule
When you actually need both
Many value-add deals require both products in sequence. A sponsor buys a building with a bridge loan, completes a medium-scope renovation (still under the bridge), then refinances into a permanent loan once stabilized. If the rehab is heavier than the bridge product supports, the sponsor might bridge the acquisition and use a separate construction loan for the rehab — or use a single renovation loan that combines both.
Renovation/rehab loans (different from both bridge and pure construction) cover acquisition + medium rehab in a single facility, up to 90% of purchase + 100% of rehab. That's the right product for value-add multifamily and adaptive reuse where the work is significant but not full ground-up.