Why are Investors Leaning on DSCR & Bridge Financing in 2025?

It should be no secret that the way investors are financing real estate deals is changing fast. Traditional loans just aren’t cutting it anymore – they’re too slow, too strict, and frankly, they often feel like they were designed for a different market.

That’s where DSCR and bridge loans come in. These are tools that investors are leaning on to stay competitive. Whether it’s closing on a great property before someone else does, or scaling a rental portfolio without getting bogged down by endless paperwork, these loans are helping investors move fast and stay flexible.

Let’s face it- in our current market, flexibility and speed often win deals. Demand for DSCR and bridge loans is growing fast, and lenders like American Heritage Lending are stepping up to meet the demand.

How DSCR and Bridge Loans are helping Investor Scale

What is a DSCR Loan?

A DSCR Loan – short for Debt Service Coverage Ratio loan is a type of real estate loan built for rental property investors. Instead of focusing on the borrower’s personal income, this loan looks at how well the property itself can cover its debt payments. In simple terms, if the property pays for itself, you’re in business.

Here’s how it works. Lenders calculate the DSCR by dividing the property’s income by its monthly debt obligations – typically using gross rental income in place of the net operating income (NOI) for simplicity. While NOI can also mean income after an expense or vacancy rate, in most DSCR loan scenarios, it’s based on rents before deductions. If the result is 1.0 or higher, the property is covering its debt; and ideally generating a little extra cushion.

For investors this is a powerful tool because it allows them to scale their rental portfolios without getting tripped up by W-2 income requirements or personal debt-to-income ratios. If the deal has cash flow, they can keep growing. Further, pairing a DSCR loan with short-term bridge financing gives investors a flexible, repeatable strategy for building long-term cash flow.

What is a Bridge Loan?

A Bridge loan is a short-term loan – typically 12 months or less – that gives investors the ability to purchase a property or refinance an existing one quickly, often with the intent of moving into permanent financing (usually a DSCR loan) once the property is stabilized or listing it for sale. It’s designed to literally “bridge the gap” between acquisition or refinance and long-term financing or sale – nothing more, nothing less.

This is a critical tool in today’s market. Sometimes the perfect deal comes along, but traditional financing just can’t move fast enough to help you grab it. A bridge loan lets investors act quickly, close with confidence, and take the time they need to get the property ready for long term DSCR loan.

At American Heritage Lending, a bridge loan means exactly that, a short-term loan that helps investors close quickly and transition into long-term financing like a DSCR loan. It’s a fast-moving tool designed for speed and simplicity, without the baggage of construction budgets or renovation timelines.

That’s important to clarify, because in this industry a “Bridge loan” can mean a lot of different things. Some lenders use the term for fix and flip loans, which are tied to rehab scopes and draw schedules. Others use it for construction loans, which involve ground up, contractor approvals, and extended timelines. While we offer those loan types as well, we define them separately. This bridge loan is for short-term interest only financing on a property that is “as-is” rather than “subject-to”.  

Why Investors Love These Loans Right Now

DSCR and bridge loans are gaining traction with investors for one simple reason: they help solve real problems in the current lending environment. For many investors, traditional loan programs can feel like trying to fit a square peg in a round hole; too many hoops to jump through, and too little flexibility to adapt to the realities of building an investment portfolio.

DSCR loans offer a welcome alternative. By focusing on property cash flow, they give investors more freedom to scale without running into conventional personal income limits or complicated underwriting hurdles. It’s a financing option that aligns with how experienced investors think about deals. If the property cash flows, the numbers work.

Bridge loans, meanwhile, help investors navigate timing challenges. Whether it’s locking down a property quickly or accessing liquidity in between long-term financing solutions, having the ability to bridge the financing gap is a practical tool, and one more investors are adding to their playbook. In short, both loan types are being used because they make it easier to get deals done and that is exactly what investors are looking for.

How Investors Are Using These Loans Together

More investors are turning to a two-step approach: using a bridge loan to secure a property quickly, followed by a DSCR loan to hold it long term.

Here’s how it typically works. An investor might start with a short-term bridge loan, either to move quickly on a new purchase or to unlock equity from an existing property through a cash-out refinance. The bridge loan provides time to stabilize the property, such as securing tenants or establishing a consistent rental income stream.

Once the property is producing steady income, the investor transitions into a DSCR loan. The DSCR loan provides permanent financing based on the property’s ability to generate income, enabling the investor to keep the property in their portfolio for the long haul. It also frees up capital they can use to fund their next move, whether that’s making another down payment, covering improvements on a new property, or staying liquid enough to act quickly when the next opportunity pops up.

It’s a straightforward strategy that aligns with how experienced investors manage deals today: acquire first, stabilize second, refinance third. Pairing bridge and DSCR loans in this way has become a proven method for scaling portfolios without getting held back by timelines and lending requirements.

DSCR VS Bridge Loans

Why Demand for These Loans is Taking Off in 2025

Banks are Getting Tougher

If you’ve tried to get a traditional investment property loan lately, you’ve probably noticed – it’s gotten a lot harder.

Between rising interest rates and tighter restrictions, many banks have pulled back on investor lending or made the process far more restrictive. Lower leverage, tougher reserve requirements, longer underwriting; all of it adds up to more hurdles and slower approvals for investors trying to get deals done.

And it’s not just anecdotal. According to KPMG, “As traditional banks tighten their lending criteria, the private lending industry is stepping in to fill the gap, offering faster approvals, fewer hurdles, and increasingly competitive pricing.”

That shift is one of the big reasons why demand for bridge and DSCR loans is growing this year. Investors aren’t just looking for alternatives; their strategy is intentionally dependent on these loans from the start.

As banks have become less appealing, having access to faster, more reliable financing is helping investors stay active and competitive.

Private Lending is Booming

With banks tightening their lending criteria, private lenders have stepped in and the demand for their products is rising fast. According to the American Association of Private Lenders, DSCR loan volumes have increased 52% year over year, while bridge loan volumes including short-term investment loans like fix & flip and ground-up projects are up 51%

That kind of growth reflects how quickly investors are shifting towards these alternatives, not out of necessity, but because they see these loan types as better suited to today’s market.

As private lending continues to expand investors are seeing more options in loan terms, and a wider range of programs designed specifically for their investment needs. The growth of bridge and DSCR loans shows that investors are leaning into this model; building financing strategies around these products from the start, rather than treating them as a backup when bank financing falls through. With momentum like this it’s clear that private lending; bridge and DSCR will continue playing a bigger role in how investors structure deals throughout 2025 and beyond.

How AHL Can Help Support These Investors

AHL’s Bridge Loan Offerings

For investors starting with a bridge loan as part of their strategy, American Heritage Lending’s bridge product is designed to support fast, effective closings; while facilitating a smooth transition to DSCR takeout when the time is right.

• True short-term bridge loan – typically up to 12 months
• Fast closings – often with 7-14 days
• Available for purchase or cash-out refinance
• Deferred point programs available – giving investors more control over how and when they pay fees, based on their short-term goals
• No prepayment penalties – so investors can refinance into DSCR when ready, without added cost
• Built with DSCR in mind: Though the DSCR loan is a separate product with its own terms, AHL’s bridge loans are designed to transition smoothly, with the same team, many of the same documents, and no need to start from scratch with a new lender.

AHL’s DSCR Loan Offerings

Investors who want to move from bridge loans to permanent financing should consider American Heritage Lending’s DSCR loans because they provide essential benefits for the bridge to DSCR strategy.

• The program allows investors to borrow up to 85% of the property value for purchases, 80% for rate-and-term refinances, and 75% for cash-out refinances to access equity while maintaining access to long-term financing options.
• Flexible loan terms available – choose between a 30-year fixed loan or a 40-year term with interest only payment for the first 10 years, giving investors options to better manage cash flow.
• The minimum debt service coverage ratio (DSCR) requirement stands at 0.75, which provides more flexibility than standard lender requirements
• The loan qualification process with AHL does not require personal income verification because it relies on property performance metrics.
• The loan program exists to work with AHL’s bridge loans so investors can transition from short term to long term financing with predictable results.

Wrap up

As the lending environment continues to change, investors are becoming more strategic in their approach to deal structuring and financing. The combination of bridge and DSCR loans is no longer a niche tactic; it is quickly becoming one of the most efficient ways to scale a real estate portfolio in our current lending landscape.

At American Heritage Lending, we understand this strategy and have designed our process and programs exclusively for the needs of real estate investors. Whether you want to capitalize on an opportunity with a bridge loan or prefer to lock in long-term financing with a DSCR loan, we are ready to assist you throughout the process.

If you’re looking to scale smarter in today’s market, our team is ready to help you build the right lending strategy – whether that means starting with a bridge loan, getting right into DSCR, or anything in between Let’s talk about what’s possible when you have the right lending partner on your side.