Bridging loans for business: paying for today with money that lands later

A bridge exists because two dates don’t line up. You need the money on the 14th, and the money you’re owed arrives on the 20th of next month. Bridging finance fills that space, and the whole product is built around how confident everyone is about the later date.

What makes a loan a “bridge”?

Plenty of short loans are labelled bridging, so it helps to be strict. A true bridge has three features:

1. A named gap. There’s a specific need today and a specific source of repayment later.
2. A dated exit. The later money has a reason and a date, such as a property settlement, a refinance approval or a payment milestone.
3. A one-hit repayment. The loan is cleared when that money lands, often with interest added to the balance rather than paid monthly.

If the exit isn’t specific, the loan is just short-term borrowing, with the risks that come with it. Our product page on bridging finance lists the main uses, and the bridging loan calculator helps with the numbers.

What do owners usually bridge?

• Property swaps. Buying new premises before the old ones sell. See funding for bridging until a property sells.
• A settlement on the brink. A purchase due to complete when your own funding falls a week behind. Our situation page on a settlement about to fall over covers it.
• A refinance in progress. The new loan is approved in principle, but the old lender must be paid first.
• Big receivables. A major invoice or contract payment is certain but not yet received.
• A tax or supplier deadline while an asset sale completes.

What’s peak debt, and why should you plan around it?

Peak debt is the largest total you owe at any single moment during the transaction. It isn’t the size of the bridge. It’s everything on the books together.

Take an owner selling a warehouse and buying a larger one. These are invented, round numbers:

Item	Amount
Existing loan on the old warehouse	$400,000
New warehouse purchase price	$1,300,000
Deposit and costs paid from cash	$200,000
New first mortgage on the new property	$900,000
Bridge to cover the deposit gap and costs until the old warehouse sells	$250,000
Peak debt (before the old property sells)	$1,550,000

On the day after settlement of the purchase, but before the old warehouse is sold, the owner owes $400k + $900k + $250k, which is $1.55m, against two properties. A lender assessing the bridge looks at that exposure and at the combined value of both properties, not only at the $250k it’s being asked to lend.

That’s why your usable equity across all properties matters. Our guide to calculating usable equity shows how, and what LVR is and why lenders care explains how the ratio applies to a bridge secured on two assets.

What’s the difference between open and closed bridging?

	Closed bridging	Open bridging
Exit	Fixed and evidenced, such as an unconditional contract of sale with a settlement date	Expected but not confirmed
Lender risk	Lower	Higher
Term	Matched to the contract	Often longer, with buffer
Cost	Generally lower	Generally higher
Approval	Usually quicker	More questions, lower limits

If you can turn an open bridge into a closed one, by getting the contract unconditional before drawing, you will often get a better outcome. If not, be honest with the lender about the uncertainty and build in time.

How does bridging differ from a caveat loan?

They overlap, and plenty of bridges are secured by caveat when speed matters. The difference is mostly framing. A caveat loan describes how the lender secures itself (a notice on title). A bridging loan describes why you’re borrowing (to cross a timing gap). One loan can be both. Our comparison of bridging finance versus a caveat loan sets out how to think about it, and the guide to caveat loans in plain English explains the security side.

What does bridging cost?

We don’t publish rates. The honest comparison is the dollar cost across the term, plus the cost of the term running over.

Typical components:

• establishment or application fee,
• interest, often capitalised (added to the balance and repaid at the end),
• valuation, legal and registration costs,
• an extension fee if the exit slips,
• property-side costs that sit outside the bridge, such as transfer duty on the purchase. Revenue NSW and its equivalents in other states publish the duty rules, and our guide to stamp duty on business property purchases explains how it affects your cash plan.

Interest added to the balance means the amount secured grows through the term. Ask what the loan balance will be on the exit date, not only the amount drawn.

Unsure whether the numbers hold up? Share your figures with us and we’ll look at them with you.

What do lenders want to see on the exit?

Bridging lenders will rarely be impressed by optimism. They look for evidence:

• A signed contract of sale, ideally unconditional, with a settlement date.
• A refinance approval from another lender, with conditions listed.
• An invoice or contract with a credit-worthy payer and a payment date.
• A realistic valuation of the asset being sold, plus a fallback if the price slips.

A good test is to ask what you would do if the exit slipped by sixty days. If you have an answer, the lender is likely to see it too. Our guide to exit strategies for short-term loans goes through weak and strong examples.

What are the common pitfalls?

• Sizing to the best case. Choose the term for the realistic date plus a buffer.
• Forgetting costs outside the loan. Duty, legal fees, agent commissions and moving costs all need cash.
• Ignoring the first lender. If your bank holds a mortgage over the property, read its contract about further borrowing.
• Using bridging as a fix for ongoing losses. A bridge repays from a specific event, not from hope. If the underlying problem is cash flow, see how to fix a cash flow problem fast.
• A sale falling through. Have a plan B, such as refinancing the bridge into a longer loan.

Is bridging right for you?

It tends to fit when the gap is real, short, and has a documented end. It is a poor fit when the repayment depends on something uncertain, or when the cost of the bridge approaches the benefit of crossing the gap. Sometimes a short-term business loan or a payment arrangement with the other party is the cheaper answer.

Map your gap, then see what’s possible

The best bridging conversations begin with two dates and two numbers: when you need the money, when it comes back, how much you need and what the property is worth. Our enquiry takes about a minute to fill in, and there’s no credit check at this stage, so asking doesn’t mark your credit file.

Your details won’t be fired off to a crowd of lenders. A real person reads them and calls you to work out what suits the situation. The more accurately you describe the property, what’s owed and the exit, the faster the right option comes into view.

Lay out your gap and see what bridges it →