When a Standard Bridge Loan Is Not Enough
Most bridge loans fund acquisitions of existing properties that need light to moderate renovation. But some projects require more: ground-up construction, gut renovations, adaptive reuse, or major additions. These deals need a construction bridge loan, a hybrid product that combines the speed of private lending with the draw-based structure of traditional construction financing.
In 2026, construction bridge loans are in high demand. Bank construction lending remains tight, with many lenders requiring 18 to 24 months of seasoning before they will consider a project. Private lenders have filled that gap, offering faster closings and more flexible terms for experienced developers.
How Construction Bridge Loans Differ
A standard bridge loan funds the full amount at closing. A construction bridge loan works differently. The lender commits to the total loan amount but funds it in stages (draws) as construction milestones are completed.
The typical structure
The initial advance covers land acquisition or the purchase of the existing structure (typically 60% to 70% of as-is value). Construction funds are held in a controlled escrow account. The borrower submits draw requests as work is completed, usually monthly. A third-party inspector verifies the work before each draw is released.
This structure protects the lender (they only fund completed work) and the borrower (they do not pay interest on unfunded amounts until they are drawn).
Current Rates and Terms
Construction bridge loans price toward the upper end of the bridge range because of the additional risk. In 2026, expect rates of 8.5% to 13% from private lenders, with terms of 18 to 24 months to accommodate the build timeline plus a brief lease-up period.
Loan-to-cost ratios typically max out at 75% to 80% of total project cost (land plus hard costs plus soft costs). Loan-to-value is calculated on the completed, stabilized value (the "as-complete" value), usually capping at 65% to 70%.
Origination fees run 1.5 to 3 points depending on project complexity and borrower experience.
What Lenders Require
Construction bridge lenders underwrite the project, the borrower, and the contractor. Here is what you need to present in your application.
For the project: a detailed scope of work, architectural plans (if ground-up), a line-item construction budget with contractor bids, a project timeline with milestones, and an appraisal showing both as-is and as-complete values.
For the borrower: a personal financial statement, a track record of completed construction or heavy renovation projects (most lenders want at least 2 to 3 similar projects), and liquidity to cover cost overruns and carry costs.
For the contractor: a valid license, insurance (general liability and workers comp), references from completed projects, and a signed construction contract with a fixed or guaranteed-maximum price.
The Draw Process
Understanding how draws work prevents cash flow problems during construction. After your contractor completes a phase of work, you submit a draw request to the lender with invoices and a progress report. The lender sends a third-party inspector to verify the work matches the approved budget. Once approved, funds are released within 3 to 5 business days.
Common draw schedule milestones include foundation completion, framing, rough-in (electrical, plumbing, HVAC), drywall and interior finishes, and final completion and certificate of occupancy.
Plan for a 10 to 15 day lag between requesting a draw and receiving funds. Your contractor needs to be comfortable with this timeline, and you should have enough working capital to bridge the gap.
Managing Construction Risk
The biggest risks in construction projects are cost overruns, timeline delays, and contractor performance. Lenders mitigate these risks through the draw structure, but borrowers need their own protections.
Budget a contingency reserve of 10% to 15% above your base construction budget. This is not optional. Material prices remain volatile due to tariffs, and labor shortages in many markets push costs higher than initial bids. A project that runs out of contingency funding mid-construction faces an ugly set of options: bringing more equity, finding supplemental financing at distressed terms, or stopping work entirely.
Use a fixed-price or guaranteed-maximum-price contract whenever possible. Cost-plus contracts shift overrun risk entirely to you as the borrower.
Exit Strategies for Construction Bridge Loans
The exit from a construction bridge loan depends on the project type. For rental properties (multifamily, MHC, mixed-use), the typical exit is a refinance into permanent debt once the property is built, leased, and generating stabilized income. For-sale projects (condos, townhomes, spec homes) exit through unit sales.
Lenders want to see your exit strategy before they fund the construction loan. If you are building to hold, present your permanent financing options with realistic rate assumptions. If you are building to sell, provide a market absorption analysis showing comparable sales velocity in the area.
For construction bridge loan inquiries, contact Requity Lending. We work with experienced developers on projects ranging from heavy renovation to ground-up commercial construction.