Bridging finance is short-term funding that covers a defined gap between two transactions, repaid from a known source once that source lands. The classic example: you have agreed to buy a new commercial property before your existing one has sold, and you need to settle the purchase now. Bridging funds the new purchase; the sale of the existing property repays it. This article explains how bridging works, when it fits, what it costs, and the most important question to answer before agreeing to one.
How bridging finance works
A bridging loan is a short-term loan, typically 1 to 12 months, secured against property or another tangible asset. The lender provides the funds at settlement; you use them for the new transaction; when the gap-closing event occurs (a sale, a refinance, a customer payment, a settlement coming in), you repay the loan plus interest and fees.
The loan is structured around the exit. The lender wants to see exactly how the loan gets repaid: not maybe, not eventually, but with a clear date and a credible source. A bridging loan without a clear exit is not really a bridge; it is a short-term loan in search of a repayment plan, and lenders avoid those.
Common situations where bridging fits
Property settlement timing. You have signed contracts on a new commercial property with a settlement date that falls before your existing property has sold. Bridging funds the purchase; the sale repays the bridge.
Business acquisition pre-refinance. You are buying a business and need to settle quickly. Bridging gets the deal done now; longer-term acquisition finance refinances out the bridge once the longer process completes.
Time-sensitive opportunities. A property is going to auction next month and a mainstream commercial loan would not approve in time. Bridging settles in days; the refinance to a long-term commercial loan follows.
Construction completion. A development is 90 per cent complete; the development facility has matured. Bridging covers the remaining cost while the asset gets to a state where it can be refinanced or sold.
In every case, the structure is the same: short-term loan + clear repayment trigger.
What does bridging finance cost?
Bridging is more expensive than long-term lending because the risk profile is different. The loan is short, the repayment depends on an event that may or may not happen on schedule, and the lender is taking real underwriting risk on the exit.
Typical interest rates: 8 to 15 per cent per annum for property-secured bridging through reputable specialist lenders, often higher for caveat-style or fully private structures. Establishment fees are common (often 1 to 2 per cent of the loan amount). Some lenders charge an exit fee, particularly if the loan is paid out early.
Interest is usually capitalised, meaning it accumulates against the loan balance and is paid at the end rather than monthly. That keeps cash flow free during the term but means the actual loan size at exit is larger than the original advance.
On a 3-month bridge for $500,000 at 12 per cent capitalised, you would expect total cost of around $20,000 once fees and interest are added. The right framing is to compare that to the value of the opportunity the bridge unlocks, not to compare it to a 30-year mortgage rate.
The exit strategy: the single most important question
Before signing any bridging loan, the question that matters is: how, exactly, does this loan get repaid, and what is plan B if plan A does not happen on time?
A sale of the existing property is a credible exit if the property is well-priced, in a saleable market, and you have at least an agent appointment if not an exchanged contract. A sale that "should happen in the next few months" is not an exit; it is hope.
A refinance to long-term commercial debt is a credible exit if you have already had at least an indicative discussion with the long-term lender and they have flagged general appetite. A refinance assumption based on "we should be fine once trading stabilises" is not an exit.
The reason this question is so critical is that bridging finance is excellent for solving timing problems and terrible at solving structural problems. If you cannot demonstrate the exit credibly, the underlying issue is probably not a timing one, and bridging will compound it. We will not arrange a bridging loan when the exit does not stack up, and the credible specialist lenders take the same view.
Bridging vs other short-term options
Caveat loan. A subset of bridging where the security is a caveat lodged over property rather than a registered mortgage. Faster to settle (sometimes 2 to 7 days) but higher cost. Suits genuinely urgent settlements where speed matters more than rate. Almost always property-secured.
Second mortgage. A longer-term secured loan sitting behind your existing first mortgage. Cheaper than bridging but slower to arrange and structurally different in intent (long-term debt vs short-term).
Working capital line of credit. The right answer when the issue is rolling cash flow rather than a single defined gap with a known repayment event.
Private credit. A broader term covering non-bank lending for non-conforming or specialist situations. Bridging finance is one form of private credit, but private credit covers longer-term and more complex arrangements as well.
When bridging is the wrong answer
Bridging is the wrong answer when there is no clear exit, when the issue is operating losses rather than timing, when the cost of the bridge eats most of the upside from the transaction it funds, or when a longer-term solution would achieve the same outcome with much less risk.
We have told clients no in this situation, even when the alternative for them was abandoning the transaction. It is the same brokerage discipline as the invoice finance article above: the right answer is the structure that actually solves the problem, not the structure the broker can place quickly.
Where to from here
We arrange bridging and short-term finance across our panel of specialist and non-bank lenders, structure it so the exit is documented before settlement, and explain the total cost honestly. You pay us nothing; the lender pays us a commission once the loan settles. A 20-minute brief is enough to work out whether bridging is the right move and which specialist lender suits. Book one through our contact page.
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