A floating-rate bridge loan quoted at SOFR + 300 basis points can look straightforward.

If SOFR falls by 100 basis points, a sponsor may reasonably expect the borrowing cost to fall by roughly the same amount.

But that is only true until SOFR reaches the loan's contractual floor.

If a bridge loan carries a 3.00% SOFR floor, benchmark declines below 3.00% may no longer reduce the borrower's coupon. That can matter materially for sponsors underwriting lower future debt service, stronger DSCR, improved cash flow, or a more comfortable bridge extension.

The key question is not simply whether SOFR is falling.

It is:

How much of that decline does the loan structure actually allow the borrower to capture?

How a SOFR Floor Changes Floating-Rate CRE Pricing

A floating-rate CRE loan generally has three relevant pricing components:

1. Benchmark

SOFR, or another contractually defined floating index, forms the variable portion of the loan's interest rate.

2. Contractual Floor

The floor establishes the minimum benchmark rate used when calculating interest.

3. Lender Spread

The spread is the fixed margin added above the applicable benchmark.

In practice, the borrower's effective benchmark is generally the greater of actual SOFR or the contractual SOFR floor.

Assume a bridge loan has:

Without a floor, the coupon would be approximately 5.00%.

With the floor, the applicable benchmark remains 3.00%, producing an approximate 6.00% coupon.

In other words:

A floating-rate loan can stop floating downward before the benchmark itself stops falling.

The Floor Matters Most When Sponsors Expect Rates to Decline

When SOFR is well above the floor, the provision may appear irrelevant.

Suppose SOFR is 4.75% when a loan closes, the spread is 3.00%, and the floor is 3.00%.

The initial coupon is approximately:

4.75% + 3.00% = 7.75%

If SOFR later falls to 3.50%, the coupon declines to approximately:

3.50% + 3.00% = 6.50%

So far, the borrower receives the full benefit of the benchmark decline.

But if SOFR eventually falls to 2.25%, the 3.00% floor becomes binding.

The coupon becomes:

3.00% + 3.00% = 6.00%

SOFR fell another 125 basis points, but the borrower received only another 50 basis points of interest-rate relief.

That distinction becomes especially important when a sponsor's business plan assumes that lower rates will improve the property's economics.

Two bridge loans with similar proceeds and identical quoted spreads can behave very differently in a falling-rate environment if their SOFR floors are different. Lever Capital can help sponsors compare the effective economics across lender executions, not just the headline spread.

SOFR Floors Can Affect More Than Current Debt Service

The floor is not simply a pricing term.

It can also affect several parts of the business plan.

DSCR

If the sponsor expects lower rates to reduce debt service and improve DSCR, a floor can limit that improvement.

Bridge Loan Extensions

Some bridge loans require minimum DSCR or other financial tests before the borrower can exercise an extension.

If the floor keeps the effective coupon higher than expected, it can influence whether the property satisfies those tests.

Property Cash Flow

Lower benchmark rates do not necessarily translate dollar-for-dollar into greater distributable cash once the floor becomes binding.

Refinancing

A sponsor may initially prefer to remain in an existing bridge loan while rates decline. But once SOFR moves below the floor, the existing loan stops getting cheaper.

At that point, the economics of refinancing may become more attractive.

SOFR Floor vs. Interest Rate Cap

The SOFR floor and an interest-rate cap work in opposite directions.

An interest-rate cap protects the borrower against the benchmark rising above a specified level.

A SOFR floor protects the lender's pricing when the benchmark falls below a specified level.

Put simply:

The cap limits how high the benchmark can effectively hurt the borrower. The floor limits how low the benchmark can effectively benefit the borrower.

A floating-rate bridge loan can contain both.

That means looking only at the quoted spread does not capture the full interest-rate structure.

Comparing Two Bridge Loan Quotes With Different Floors

Consider two competing quotes.

Lender A

Lender B

When SOFR is above 3.00%, Lender A appears cheaper because its spread is 25 basis points lower.

But if benchmark rates decline materially, Lender B may eventually produce the lower effective coupon because its floor allows the borrower to capture more of the rate reduction.

That is why sponsors should compare more than spread.

The analysis should include:

The cheapest loan on Day 1 may not remain the cheapest over the expected hold period.

The Spread Does Not Tell the Whole Pricing Story

A quote of “SOFR + 300” does not fully describe a floating-rate CRE loan.

If a contractual floor applies, the borrower may receive only part of the benefit from future benchmark declines. That can affect debt service, cash flow, extension eligibility, and the timing of a refinance.

For sponsors expecting lower rates to improve a transitional business plan, the floor should be modeled explicitly rather than treated as a minor term-sheet provision.

How Lever Capital Partners Can Help

Floating-rate bridge quotes can look similar on proceeds and spread while producing materially different economics once floors, hedges, and extension provisions are included.

Lever Capital can help sponsors compare the full financing execution across multiple rate scenarios.

If you are evaluating floating-rate bridge financing, contact Lever Capital to compare how the spread, SOFR floor, hedge, and extension terms affect the transaction over the expected hold period.