You’ve found the perfect commercial property for your business expansion. Or maybe you need to relocate fast before your lease expires. But there’s a timing problem. You can’t secure long-term financing quickly enough, or you’re waiting on funds from another source.
This is exactly where a bridging loan becomes valuable. It’s short-term funding designed to cover the gap between your immediate needs and your longer-term solution. But before you apply, you need to understand how these loans actually work and what risks come with them.
What a Bridging Loan Actually Is
A bridging loan is temporary financing. Usually between one and twelve months. It bridges the gap until you can secure permanent funding, sell an asset, or receive expected cash.
For businesses, this might mean buying new premises before selling your current location. Covering immediate expenses while waiting for a major client payment. Seizing a time-sensitive opportunity that can’t wait for traditional loan approval.
These loans work differently from standard business finance. Lenders focus heavily on your exit strategy. How will you repay this loan? When will those funds arrive? Your ability to service the loan matters less than your clear path to paying it off completely within the short term.
The Two Main Types
Closed Bridging Loans
This is when you have a confirmed repayment date. You’ve exchanged contracts on a property sale with a set settlement date. Or you have a guaranteed payment arriving on a specific date. Because the repayment is locked in, these carry less risk for lenders. You’ll typically get better rates and terms.
Open Bridging Loans
No confirmed repayment date. You’re confident that you can repay within the term, but the exact timing is not yet guaranteed. These cost more. Higher interest rates. Stricter terms. Maximum loan periods are usually capped at six to twelve months.
What Makes Secured Bridging Loans Different
Most bridging finance is secured. That means you’re providing collateral. Commercial property. Residential property. Sometimes, valuable equipment or other business assets.
A secured bridging loan gives lenders protection. If you can’t repay, they can seize and sell the asset to recover their money. This security is why bridging loans can be approved quickly compared to unsecured business finance.
The loan to value ratio matters here. Most lenders will advance 60% to 80% of your asset’s value. Premium commercial properties in capital cities might get you to 80%. Rural property or specialised assets might only reach 60% or 70%.
You need significant equity in whatever you’re using as security.
The Real Costs Involved
Bridging loans tend to be quite expensive. Interest rates typically run from 0.5% to 1.5% per month. That’s 6% to 18% annually. Compare that to standard business loans sitting around 6% to 7% per year, and you see the premium you’re paying.
Arrangement fees often hit 2% of the loan amount upfront. Valuation costs for your security property run $500 to $2,000. Legal fees for loan documentation. Sometimes early exit fees if you repay before the minimum term.
On a $500,000 bridging loan at 1% monthly for six months, you’re looking at roughly $30,000 in interest plus $10,000 in fees. That’s $40,000 total cost for six months of funding.
The question becomes whether the opportunity you’re funding is worth more than what you’re paying.
The Application Process
Documentation You’ll Need
Proof of identity and business registration. Financial statements show your business’s health. Details of the asset you’re using as security. Clear explanation of why you need the funds and how you’ll repay them.
Your exit strategy documentation is critical. If you’re selling property, provide the listing agreement and a realistic market appraisal. If you’re refinancing, show pre-approval from your permanent lender. If you’re waiting on a payment, provide contracts proving the funds are coming.
Approval Timeline
Simple applications with clear security and exit strategy can get pre-approved within 24 to 48 hours. Settlement can happen within 5 to 10 days for urgent situations. More complex scenarios take two to three weeks.
What You Absolutely Need to Watch Out For
Exit Strategy Pressure
Your entire bridging loan hinges on your exit strategy working. If your property doesn’t sell within the term, you’re in serious trouble. If your permanent financing falls through, you’ve got a problem.
Build a buffer into your timeline. If you think your property will sell in six months, get a nine-month bridging term. Give yourself breathing room.
Double Debt Burden
During the bridging period, you’re often carrying two loans. Your existing debt plus the new bridging finance. This creates serious cash flow pressure.
Make absolutely certain you can service both during the overlap period. Some bridging loans let you capitalise interest, meaning it gets added to the loan rather than paid monthly. This reduces immediate cash pressure but increases your total debt.
Market Risk
What if your property sells for less than expected? The shortfall becomes your problem. Always plan for sale prices 10% to 15% below your optimistic projection.
Hidden Costs and Fees
Read the fine print carefully. Some lenders charge monthly fees just to keep the facility available. Others have penalties for early repayment. Get complete disclosure upfront about every fee and charge you’ll face.
When Bridging Loans Make Sense for Business
Urgent Property Acquisition
You’ve found premises perfect for your business, but need to move fast. Bridging finance lets you secure the property now. You refinance to permanent financing once you’re in and established.
Business Relocation
Your lease is ending, and you need to relocate. You’ve found new premises, but your current lease won’t let you break early. A bridging loan covers the overlap period until your old lease expires.
Waiting on Major Receivables
You’ve got a substantial payment coming. The funds are guaranteed, but timing doesn’t match your immediate needs. Bridging finance covers expenses until that payment arrives.
Alternative Options Worth Considering
Business Line of Credit
If you regularly face timing gaps, a revolving line of credit might serve you better. Usually cheaper than bridging finance for ongoing needs.
Invoice Finance
Waiting on customer payments? Invoice finance advances you 80% to 90% of the invoice value immediately. Often faster and cheaper than bridging loans for receivables issues.
Negotiated Timing
Before assuming you need bridging finance, try negotiating timing with the parties involved. Landlords might extend your lease. Sellers might accept delayed settlement. These conversations cost nothing and might solve your problem without expensive debt.
Making the Right Decision
Bridging loans solve specific problems. Timing gaps. Urgent opportunities. Transitional funding needs.
But they’re expensive. Risky if your exit strategy fails. Potentially devastating if market conditions change unexpectedly.
Before applying, honestly assess your situation. Do you genuinely need bridging finance or are you rushing into something? Is your exit strategy realistic or optimistic? Can you handle the costs and cope if things take longer than planned?
Get professional advice. Talk to brokers who specialise in commercial finance. They understand which lenders suit different scenarios and can negotiate better terms.
How Relief Business Loans Can Help
At Relief Business Loans, we’ve helped numerous Australian businesses navigate short-term funding needs. We understand bridging finance isn’t always the answer, but when it is, we make sure you get it right.
Our process starts with understanding your complete situation. Why do you need bridging finance? What’s your exit strategy? What risks exist? We assess whether bridging finance genuinely suits your needs or if alternative funding makes more sense.
We work with you to prepare the strongest possible application and connect you with lenders suited to your specific scenario. Not just whoever pays us the highest commission. The lenders whose criteria match your situation and whose terms make sense for your business.
Want to discuss whether bridging finance makes sense for your situation?
Get in touch with Relief Business Loans for a no-obligation assessment. We’ll review your needs honestly and help you figure out the best path forward.
Because your business deserves financing solutions that actually work, not just quick approvals that create long-term headaches.
