Bridging Loans: The Complete Guide to Short-Term Property Finance

A bridging loan is short-term finance secured against property, used to fund a purchase or project quickly and repaid from a sale, a refinance or another planned source within months rather than years. It suits property investors, developers and trading businesses that need to move faster than a commercial mortgage allows, or need funding for a property that is not yet mortgageable. Growth Business Finance (GBF) arranges business-purpose bridging finance from £1m to £100m.

Key facts

• Size: GBF arranges real estate finance, including bridging, from £1m to £100m.
• Pricing: from 0.69% a month, priced deal by deal.
• Loan to value: up to 100% LTV where additional security is provided.
• Term: 1 to 24 months.
• Repayment: usually in one lump sum at the end, from the agreed exit.
• Interest: often rolled up or retained, so there may be no monthly payments during the term.
• Key test: the strength of the security and the credibility of the exit.

How a bridging loan works

A bridging loan "bridges" the gap between needing money now and having a longer-term source of repayment later. The lender takes a charge over one or more properties, lends a percentage of their value and expects to be repaid in full at the end of the term.

Interest options

Bridging interest is quoted monthly rather than annually. GBF arranges bridging from 0.69% a month. Interest can usually be dealt with in one of three ways:

• Rolled up: added to the loan and paid on redemption, so there are no monthly payments
• Retained: calculated for the term and deducted from the advance at the start
• Serviced: paid monthly, as with a normal loan

Rolled up and retained interest protect cash flow during a project, but they increase the amount you repay, so the exit has to cover the total balance.

Open and closed bridges

A closed bridge has a fixed repayment date because the exit is already secured, for example a sale that has exchanged. An open bridge has a maximum term but no fixed date, and the lender relies on a credible plan such as a refinance onto a commercial mortgage or a sale once works are complete.

First and second charges

Most bridging is secured by a first legal charge. Some lenders will take a second charge behind an existing mortgage, or take extra security over other property. Additional security is what allows LTV of up to 100% on the purchase property.

This guide covers business-purpose bridging. Loans secured on a home that you or your family live in are regulated differently and are outside its scope.

Who bridging loans suit

• Property investors and property developers buying at auction, funding refurbishment or conversion, or acquiring sites before planning or development finance is in place
• Hospitality operators acquiring or refurbishing hotels, pubs and restaurants before refinancing on stabilised trading
• Owner-occupiers buying new premises before the old ones have sold
• Businesses releasing capital quickly from property they already own, for an acquisition, a deadline or a short-term opportunity
• Landlords refinancing a property that is temporarily unmortgageable, for example because it needs works or is vacant

Costs and terms

GBF arranges bridging from 0.69% a month, up to 100% LTV with additional security, over 1 to 24 months. The rate you are offered depends on:

• LTV: lower leverage attracts keener pricing
• The asset: standard residential and commercial property is easier to finance than specialist or unusual assets
• The exit: an exchanged sale or an agreed refinance is stronger than a hoped-for outcome
• Experience: lenders take comfort from a track record of similar projects
• Works: heavy refurbishment or conversion usually costs more than a simple purchase bridge

Beyond interest, expect an arrangement fee, a valuation, legal costs for both sides and, with some lenders, an exit fee. Ask for an illustration of the total redemption figure over the expected term, as that is the true comparison between offers. Because costs accumulate monthly, a delayed exit is the main risk, so build in time for slippage.

Eligibility and what lenders look at

Bridging lenders focus less on years of accounts and more on three things:

1. Security. The value, condition and saleability of the property, confirmed by a RICS valuation, plus any additional security offered.
2. Exit. How and when the loan will be repaid. Lenders want evidence, such as a refinance offer in principle, an agent's view on sale value, or a realistic plan supported by numbers.
3. The borrower. Experience, credit history, source of deposit and the structure of the borrowing entity.

Adverse credit does not automatically rule you out, but it needs to be explained up front.

Planning a credible exit

The exit is where most bridging deals succeed or fail, so it deserves as much attention as the purchase. Common exits, and what lenders want to see for each, include:

• Sale of the property. Evidence of realistic value from agents, comparable sales and a sensible marketing period. If units are being sold individually, the lender will look at how quickly comparable units have sold.
• Refinance onto a commercial mortgage. The property needs to meet a long-term lender's criteria at the end of the bridge, for example let on acceptable terms, in good condition and with rent or trading that covers the new loan. GBF arranges commercial mortgages from 1% over Bank Rate at up to 75% LTV, so the bridge balance, including rolled-up interest, needs to fit within that.
• Refinance onto development finance. Where planning is being obtained, the exit may be a development facility once consent is granted.
• Sale of another asset or receipt of funds. Lenders will want to see evidence that the money is committed and when it will arrive.

A good rule is to plan for the exit taking longer than expected, and to choose a term with enough headroom to absorb delays without needing an extension.

Documents you will need

• Details of the property, including the purchase price or current value and title information
• A clear written exit strategy with supporting evidence
• For refurbishment, a schedule of works, costs and timeline
• Proof of deposit or source of funds
• Company documents and details of directors and shareholders
• Experience summary for property or development projects
• Recent accounts or bank statements where the business is servicing interest
• Details of any existing borrowing on the property or other security

Bridging loans compared with the nearest alternatives

Common mistakes to avoid

• A weak exit. "We will refinance" is not an exit unless the property and the numbers will clearly meet a mortgage lender's criteria at the end.
• Underestimating time. Planning, works, sales and refinancing often take longer than expected. Choose a term with headroom.
• Comparing only the monthly rate. Fees, exit charges and default terms can matter more.
• Using bridging for long-term needs. Bridging is priced for speed and flexibility. If you will hold the asset, plan the move to a commercial mortgage early.
• Overstating value. The lender relies on its own valuation. Optimistic figures lead to down-valuations and late changes.
• Leaving it too late. Auction and deadline purchases still need valuation and legal work. Engage before you bid or commit.

How a broker and debt adviser like GBF helps

GBF is a commercial finance broker and debt adviser, not a lender. With bridging, the value is in getting the structure and the exit right before a lender sees the deal.

1. Initial review. We assess the property, the timetable and the exit, and confirm whether bridging is the right tool or whether a commercial mortgage or development facility fits better.
2. Structuring. We decide the LTV, term, interest treatment and any additional security, and plan the exit refinance at the same time.
3. Credit paper. We present the deal clearly, with the evidence lenders need on value and exit.
4. Lender selection. We approach the lenders best suited to the deal from our whole-of-market panel of 650+ lenders.
5. Negotiation. We compare the full redemption cost across offers and negotiate on rate, fees and terms.
6. Completion and exit. We coordinate valuers and solicitors to completion, then work on the longer-term refinance.

Our financial calculator helps you model costs, and our commercial mortgages and property finance page covers the wider range of real estate facilities we arrange.

FAQs

How quickly can a bridging loan complete?

Bridging is designed for speed, and straightforward cases complete much faster than a commercial mortgage. The timetable depends mainly on the valuation and the legal work, so having documents ready makes the biggest difference.

What does a bridging loan cost?

GBF arranges bridging from 0.69% a month, priced deal by deal. Add arrangement, valuation and legal costs, and in some cases an exit fee. Compare offers on the total amount you will repay.

How much can I borrow on a bridging loan?

GBF arranges bridging from £1m to £100m, at up to 100% LTV where additional security is available. Without extra security, the LTV will be lower.

What is an exit strategy?

It is how you will repay the bridge, usually by selling the property, refinancing onto a commercial mortgage or development facility, or from another confirmed source of funds. It is the single most important part of a bridging application.

Do I need to make monthly payments?

Not always. Interest can often be rolled up or retained, so there are no monthly payments during the term. You can also choose to service interest monthly, which reduces the amount due at the end.

Can I use a bridging loan to buy at auction?

Yes. Auction purchases are one of the most common uses, because completion deadlines are usually too short for a standard mortgage. Engage early so the valuation and legal work can be done in time.

Can a bridging loan fund refurbishment works?

Yes. Many bridging facilities fund both the purchase and the works, with the works element released in stages. Heavier projects may suit development finance instead.

Next step

If you need bridging finance from £1m, start with check what you could raise for an initial view, or call Growth Business Finance on 020 3432 2341 to talk through the deal and the exit. Finance is subject to status and lender approval.

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF