What business bridging finance is
Bridging finance is a short-term loan that tides a business over until a known event repays it. The event is the exit: a property settlement, an approved long-term loan, the sale of an asset or a large payment that's due. Lenders focus on how certain and how close that exit is.
Home-buyer bridging loans, where a family buys a new home before selling the old one, are consumer credit and aren't something FundFox arranges. This page covers bridging for business purposes.
Common uses
- Buying new commercial premises before the old ones sell.
- Settling a property purchase while long-term finance is still being approved.
- Paying a tax bill or supplier while waiting on the sale of an asset.
- Finishing a development project, or carrying completed stock until it sells or is refinanced.
Open and closed bridging
| Feature | Closed bridging | Open bridging |
|---|---|---|
| Exit | Fixed and documented, such as an unconditional sale contract | Expected but not yet locked in |
| Lender risk | Lower | Higher |
| Cost | Usually lower | Usually higher |
| Typical term | Matches the settlement date | Up to about 12 months |
How bridging loans are structured
Lenders look at the peak debt: the most you'll owe at any point, including interest. Many bridging loans capitalise the interest, so you make no monthly repayments and the interest is paid from the sale or refinance at the end. That protects cash flow during the bridge, but it does make the loan grow, so the exit needs to cover the final balance.
Security can be the property you're selling, the property you're buying, or both. Where the existing loan sits with a bank, the bridging lender may refinance it into a single facility for the bridging period.
What lenders look at
- The exit. Sale contracts, a valuation, a conditional approval for long-term finance, or contract terms showing when money is due.
- Peak debt as a share of value. Many lenders keep it at or below around 70% to 80% of combined security values.
- Time to exit. Shorter and more certain bridges are easier to fund.
- A plan B if the sale takes longer or settles for less.
What it costs
Expect rates above standard business lending, plus establishment, legal and valuation fees. With capitalised interest, the cost grows the longer the bridge runs, so ask your broker to model a delayed exit as well as the expected one.
Example scenario
An engineering business buys a larger factory for $2.4 million and has signed a contract to sell its current premises for $1.6 million, settling four months later. A bridging loan secured over both properties funds the purchase. When the old premises settle, the sale proceeds reduce the debt and the balance moves to a standard commercial loan.
Example only. It isn't a real client.