One of the most common questions we hear from commercial real estate investors is whether they should pursue bridge financing or a permanent loan. The answer depends on your property's current condition, your business plan, and your timeline. Here's a comprehensive breakdown to help you make the right choice.

What Is a Permanent Loan?

A permanent loan (also called a "perm" or "takeout" loan) is long-term financing for stabilized commercial properties. These loans typically feature:

  • Terms: 5-30 years, with 25-30 year amortization
  • Rates: Fixed rates of 5.25%-6.75%, or floating at SOFR + 150-250 bps
  • LTV: Up to 75-80% for multifamily (agency), 65-75% for commercial
  • Lenders: Banks, life insurance companies, CMBS, Fannie Mae/Freddie Mac

Permanent loans are the gold standard for stabilized, income-producing properties. They offer the lowest rates, longest terms, and most favorable structures. The trade-off is that lenders require the property to be performing — typically 90%+ occupied with stable cash flow and a minimum debt service coverage ratio (DSCR) of 1.20x-1.25x.

What Is a Bridge Loan?

A bridge loan is short-term financing designed to "bridge" the gap between acquisition (or a current state) and stabilization. Key characteristics include:

  • Terms: 12-36 months, typically interest-only
  • Rates: SOFR + 250-450 bps (7.50%-9.50% all-in)
  • LTV: Up to 75-80% of purchase price, sometimes 80-90% of cost with rehab budget
  • Lenders: Debt funds, private lenders, some banks

Bridge loans are built for properties in transition — value-add renovations, lease-up situations, repositioning, or properties that don't yet qualify for permanent financing. They're more expensive but far more flexible.

When to Use a Permanent Loan

A permanent loan is the right choice when:

  • Your property is stabilized at 90%+ occupancy
  • Cash flow comfortably covers debt service (DSCR above 1.25x)
  • You plan to hold the property long-term (5+ years)
  • You want to lock in the lowest possible rate
  • The property doesn't need significant capital improvements
  • You're refinancing out of a bridge or construction loan after stabilization

When to Use a Bridge Loan

A bridge loan makes more sense when:

  • The property is below 85% occupancy or has significant vacancy
  • You're planning renovations or capital improvements
  • You're acquiring a distressed or mismanaged asset
  • The property needs lease-up time to reach stabilization
  • You have a 12-36 month business plan to add value
  • You need to close quickly (bridge loans can close in 2-4 weeks vs. 60-90 days for permanent)
  • The property has deferred maintenance or operational issues a permanent lender won't look past

The Bridge-to-Perm Strategy

Many sophisticated investors use a two-step approach: acquire with a bridge loan, execute the business plan, then refinance into permanent financing once the property is stabilized. This strategy allows you to:

  1. Move quickly on acquisitions where seller timelines are tight
  2. Finance the renovation or lease-up period with interest-only payments
  3. Qualify for better permanent loan terms once the property is performing
  4. Potentially pull cash out during the permanent refinance to recoup equity

The key risk in this strategy is execution. If your renovation takes longer than expected or the market shifts, extending a bridge loan can be costly. Budget conservatively and build in a 6-month cushion on your bridge term.

Cost Comparison Example

Consider a $5 million multifamily acquisition:

Permanent Loan: 70% LTV ($3.5M loan), 5.75% fixed, 30-year amortization = $20,400/month payment. Total interest over 5 years: ~$952,000.

Bridge Loan: 75% LTV ($3.75M loan), 8.5% interest-only for 24 months = $26,563/month. Total interest over 2 years: ~$637,500. Then refinance to permanent.

While the bridge rate is higher, the interest-only structure and shorter hold period can actually result in less total interest paid — provided you execute the business plan on schedule.

Which Should You Choose?

The right choice comes down to property condition and business plan. If your property is stabilized and you're looking for long-term hold, go permanent. If you're adding value and need flexibility, bridge first, then refinance.

In either case, having a broker who understands both sides of the capital stack — and knows which lenders are most competitive for your specific scenario — is critical to getting the best terms. At CLS CRE, we regularly structure both bridge and permanent loans, and we often plan the exit strategy (permanent takeout) before closing the bridge.