California’s Private Lending Divide: Bridge Loans Remain Hot Commodities While DSCR Growth Cools

By Nema Daghbandan, Esq.

After improving lending conditions throughout much of late 2025 and early 2026, recent months have brought renewed headwinds for real estate investors. Rising Treasury yields have pushed borrowing costs higher, particularly for DSCR loans, while ongoing economic uncertainty has led many market participants to err on the side of caution.

Nationally, the impact has been most visible in the DSCR market, where volume growth has slowed as rates rebounded from recent lows. Bridge lending, meanwhile, has remained comparatively stable, continuing the moderate but consistent growth trend seen over the past year.

California presents an interesting contrast. While the state has enjoyed some of the broader growth seen in nationwide DSCR lending, it remains fundamentally a bridge lending market. Through May 2026, bridge loans accounted for 78.5% of all California loan production generated through Lightning Docs, compared to just 21.5% for DSCR loans. Nationally, the relationship is nearly reversed, with DSCR loans representing 54.5% of loan production and bridge loans accounting for 45.5%.

That distinction helps explain many of the trends seen in the state’s lending activity. While California bridge lending, according to Lightning Docs data, continues to outperform the national growth rate by nearly double (11.3% versus the country’s overall 6.1%), its DSCR lending has shown a disproportionately stronger reaction to recent changes in borrowing costs. The result is a market that remains highly active but continues to be driven primarily by short-term bridge loans, the lending product that has historically defined California’s private lending activity.

Through the first five months of 2026, California bridge loan volume grew 11.3% year-over-year on Lightning Docs. When looking at the broader market through data sourced by third-party aggregator Elementix, California bridge loans grew from 5867 to 6193 over the same period, a 5.5% year-over-year growth. California accounted for one-fifth of all bridge loans generated through Lightning Docs during this period, reflecting the state’s outsized market share in the bridge lending environment.

This outperformance is consistent with the state’s longstanding role within private lending. California’s bridge market benefits from high after repair property values, a large concentration of professional real estate investors, and continued demand for acquisition, renovation, and transitional financing. These factors have historically made bridge lending one of the state’s most resilient lending segments.

California continues to rank among the largest average loan markets in the country, typically averaging $300,000-$400,000 more per loan than the national average. California is one of only five states with an average bridge loan amount exceeding $1 million and currently trails only Arizona and Nevada in 2026 so far.

During the recent period of rate stagnation, California bridge lending has also proven somewhat less sensitive than many other markets. Average bridge rates in the state declined by two basis points in May and have generally remained more than 10 basis points below the national average in recent months. To further illustrate the difference, California’s average bridge rate currently sits more than a full percentage point below the highest-rate bridge lending states.

DSCR lending tells a different story. Nationally, DSCR lending has been one of the strongest growth drivers on Lightning Docs and in private lending as a whole, expanding by 41.5% year-over-year on the platform through May. While growth has recently slowed following the rise in 10-year Treasury yields, activity remains above year-ago levels in most markets.

California, however, has experienced a more pronounced slowdown. After posting just 1% year-over-year growth in April, DSCR volume declined 12% in May. Despite the recent pullback, California remains the seventh-largest DSCR lending state by volume and has grown almost 13% in cumulative DSCR volume (658 in 2025 versus 743 in 2026) when comparing same store sales from 2025 versus 2026, demonstrating the significant progress the market has made on the platform over the past several years.

The state’s sharper slowdown appears closely tied to borrowing costs. While national DSCR rates increased by 17 basis points between March and May (6.94% to 7.11%), California rates rose 33 basis points over the same period, climbing from 6.88% to 7.23%.

Like bridge lending, California DSCR loan amounts remain significantly larger than national averages. Over the past year, average DSCR loan sizes in California have typically exceeded national figures by roughly $300,000. At just under $600,000, California currently ranks second nationally in average DSCR loan amount, trailing only Hawaii.

Taken together, the data suggests California’s private lending market remains anchored by its traditional strengths. Bridge lending continues to outperform national growth rates, reinforcing the state’s position as the country’s leading bridge lending market. Despite broader economic uncertainty and shifting rate expectations, California bridge activity has remained remarkably resilient.

DSCR lending, meanwhile, has shown greater sensitivity to recent increases in long-term interest rates. While the segment remains an important part of California’s private lending ecosystem, volume growth has cooled more rapidly than the national average as borrowing conditions have become less favorable.

As market participants continue to navigate an evolving rate environment, California’s bridge lending market continues to provide a strong foundation for overall private lending activity.

For purposes of this article, bridge loans refer to short-term real estate loans, generally 36 months or less, that utilize interest-only payments during the loan term and a balloon payment at maturity. These loans are also commonly referred to as residential transition loans (RTL), fix-and-flip loans, hard money loans, or other terms used across the industry to describe short-term investment property financing.

DSCR loans are 30-year term loans secured by rental properties. DSCR stands for Debt Service Coverage Ratio, which is calculated by dividing a property’s monthly net operating income by its monthly debt service. Underwriting for these loans is primarily based on the property’s cash flow rather than borrower income.

All Lightning Docs data referenced in this article is derived from loan activity processed through the platform. Lightning Docs is a business purpose loan document solution utilized by non-agency mortgage lenders to generate Bridge and DSCR loans, including more than 50% of the nation’s top 50 private lenders.

All third-party data referenced in this article was sourced through Elementix, an external data aggregator.