April 12, 2021

Agency Lending vs. Bridge Debt - Differences

Whether you are an investor needing fast cash, refinance a property, or purchase a new one, loans are a necessity.

Agency Lending vs. Bridge Debt - Differences

Whether you are an investor needing fast cash, trying to refinance a property, or purchase a new one, loans are a necessity. We will look at two loans, one being a bridge loan, and the other an agency loan. Although these loans are used to reach different objectives, both are very popular among multi-family investors.

Bridge Loan

Investopedia defines a bridge loan as a “short term loan that is used until a person or company secures permanent financing or removes an existing obligation.” As its name signifies, borrowers often use this loan to bridge the gap between starting and completing a task. These tasks might include improving the property’s appeal or finding new tenants, which all lead to stabilization of the property. Stabilization will be vital to the success of a refinance.

The improvement and stabilization of the property will also increase its value, so those who plan to do a “quick flip and fix” find this type of loan attractive as well.


A bridge loan’s major draw comes in its lack of structure. While agency lenders will typically only approve stabilized assets, bridge lenders make their money on value-added projects that sit in the pre-stabilization phase. If an investor has a strong strategy to increase revenues on an asset, they have an opportunity to produce outsized returns. The bridge loan was created for these types of investors. 

Bridge loans also have a quick closing process because they are based on the value of property rather than the income a property generates. Thus, no need for heavy analysis and the grueling time that goes with it. Additionally, bridge loans offer higher leverage points, decreasing the amount of equity needed to close, and increasing equity multiples created from appreciation. Finally, like agency loans, bridge loans are non-recourse, so investors do not have to risk personal assets. 


Bridge loans have a short timeline, with a payoff date of less than 3 years. With short-term comes high interest rates, so these loans tend to be more expensive. Due to its short-term state, there is a higher level of risk involved as well because borrowers must either refinance or sell by the end of the period.

Long-Term Agency Financing

Agency loans are provided by two government-sponsored enterprises commonly known as Freddie Mac and Fannie Mae. These agencies came to existence first in 1938 (Fannie Mae) and then in 1970(Freddie Mac) for the purpose of providing a reliable and affordable supply of mortgage funds. 

The agencies consist of mortgage investors who purchase mortgages from lenders and then package these loans into mortgage-backed securities for sale to investors on the secondary mortgage market. Fannie Mae and Freddie Mac offer a wide pool of financing products and in 2018 issued more than $143 in multifamily loans.


The main draw of an agency loan comes in the form of low interest rates. Because these loans are long term, and are typically only approved for stabilized assets, they are considered low risk to those who invest in the notes on the back end. For this reason, lenders can offer more attractive interest rates, reducing a borrower’s yearly debt constraint. 

Agencies also offer a sort of hybrid product in the form of floating rate loans that look to add a bit more flexibility. These loans have interest rates that go up and down in parallel to the Secured Overnight Financing Rate (SOFR). Though interest volatility adds more stress to an investment, rate caps are offered to mitigate the risk. These floating debt products are typically 7-10 year term loans with a prepayment of 1% providing flexibility for the borrower by allowing a sale at any date prior to maturity. 


Unlike bridge loans, agency loans require a great deal of qualifications. These include strong financials, experience in managing similar projects, and credit scores starting around 660. Also, the borrower must have a net worth of at least 100% of the loan amount with liquidity of 10% of the loan amount. Furthermore, the property must be stabilized, sitting at 90% occupancy for 90 days. Finally, receiving approval is a longtime coming with agency loans, usually taking anywhere from 6 to 12months. 


Although the loans provided by Fannie Mae and Freddie Mac have many requirements, agency loans are a great choice for investors who need to refinance or purchase a stabilized property for a long-term hold. Bridge loans on the other hand offer an alternative option for investments that do not fit within the constraints outlined by these agencies, offering a speedy process and quick access to funds. Both loan products are viable options for investors, and as usual provide key advantages for different situations.


Agency - long-term, highly regulated, less risk

  • Backed by a government - sponsored enterprise
  • Property typically needs to be stable with at least a     90% occupancy for the trailing 3 months
  • Moderate amount of leverage (70%-80%     LTV) and lower interest rates.
  • Borrower must have good credit 660,     680 FICO score and a net worth of at least 100% of the loan
  • Borrower should have a liquidity of at     least 10% of the total loan amount
  • Positives - lower rates (risks for     lenders is limited due to qualifications), terms typically offer long-term     amortization, nonrecourse, solid leverage up to 80% LTV on acquisition     loans, and up to 75% LTV for cash-out refinances


Bridge Debt - higher interest rates, short term

  • Asset does not need to be stabilized
  • Faster application and approval timeline
  • For use when higher leverage is needed as Capex budget     will be looped into loan proceeds.
  • Often used as a temporary tool for getting the asset to     stabilization where one can then obtain conventional financing via a     refinance

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