Bridging loans for business: how to cover the gap between buying and selling

A bridging loan is short-term, property-secured finance that pays for something now because the money you’re relying on arrives later. The classic case is buying a new property before your current one sells, but in business it’s just as often about grabbing premises at auction before the bank has finished its paperwork. It isn’t a long-term loan. It’s a bridge, and the most important part of any bridge is the far side.

How does a bridging loan actually work?

At settlement of the new purchase, the lender takes security over both properties: the one you’re buying and the one you’re selling (or the one that will be refinanced). It then lends enough to cover the purchase, the costs and, usually, the interest for the expected term. When the existing property sells, the sale proceeds go straight to the lender to pay the bridge down or out.

Two numbers drive the whole deal:

• Peak debt. Everything owed while you hold both properties: any existing mortgage, the new purchase price, stamp duty, legal costs and the interest that builds up during the bridge.
• End debt. What’s left once the sale settles and the proceeds come off. If there’s an end debt, it needs to roll into a normal long-term facility.

A lender will only approve the bridge if peak debt sits comfortably within the combined value of the security and end debt is something the business (or a long-term lender) can genuinely carry.

When is bridging finance the right tool?

Bridging finance earns its keep when the timing problem is real and the exit is solid. Common business uses include:

• Buying new premises before the old ones sell, so the business moves once instead of twice.
• Settling an auction purchase while a bank’s commercial approval is still in progress.
• Paying out an existing lender that has called in a loan, while a sale or refinance is arranged.
• Releasing equity from one property to fund the deposit and costs on another.

It’s the wrong tool when there’s no clear way out. If the plan is “sell eventually” with no listing, no agent appraisal and no price expectation, a lender sees a loan that may never be repaid on time. In that case a longer first mortgage business loan or a private mortgage with a sensible term usually fits better.

What do lenders look at before approving a bridge?

Lenders read a bridging application differently from a standard business loan. Turnover and profit matter less; the property and the exit matter more.

1. The security. What both properties are worth, where they are, and how easily they’d sell. A house in a capital-city suburb is easier to lend against than a specialised rural block.
2. The exit. A signed contract of sale is the strongest exit. An agency agreement and a realistic appraisal come next. For a refinance exit, evidence that a long-term lender is already assessing the deal helps a great deal.
3. Existing debt and who holds it. If a bank already has a first mortgage, the bridging lender may sit second, or may pay the bank out.
4. The borrower. Credit history, ATO position and any arrears. These are considered case by case rather than ruled out automatically.
5. Holding costs. Rates, insurance and, in some states, land tax. In NSW, for example, land tax liability is based on the land you hold at midnight on 31 December, so a bridge that runs across New Year can leave you holding two taxable properties on the taxing date.

If you’ve got a purchase in front of you and a sale or refinance lined up behind it, you can check whether a bridge would work for you in about a minute.

What does bridging finance cost?

There’s no single price for bridging finance because every deal is priced on its own facts: the quality of the security, how much is borrowed against it, the strength of the exit and the borrower’s history. What you can understand in advance is the structure of the costs:

Cost	What it is
Establishment fee	Charged by the lender for setting up the facility, usually taken from the loan at settlement
Interest	Often capitalised (added to the balance) or prepaid, so there are no monthly repayments during the bridge
Legal and settlement costs	Your solicitor’s fees, plus the lender’s legal costs, which borrowers normally pay
Stamp duty on the purchase	A state charge on the property you’re buying; in NSW the purchaser pays it, by the earlier of settlement or three months after the contract
Discharge costs	Fees to release the security when the bridge is repaid
Extension fees	Charged if the exit takes longer than the agreed term

Because interest builds into the balance, a bridge that runs three months longer than planned costs more than just three extra months of interest: it eats into the equity you were counting on for the end debt. Build some slack into the term from the start.

Illustrative example: moving premises without moving twice

Illustrative example: a family-owned engineering workshop has outgrown its freehold factory, which is worth around $900k with a $200k bank loan against it. A larger unit two suburbs away comes up for $1.3m with a six-week settlement. The bank says a new commercial loan will take longer than that, and the owners don’t want to sell the old factory until the new one is fitted out.

A bridging facility secured over both properties covers the purchase, duty and costs, with interest prepaid for nine months. The business moves once, lists the old factory, and sells it for $880k seven months later. The proceeds clear the bridge down to an end debt of around $700k, which the bank then refinances on normal commercial terms. The owners also checked with their accountant early about the capital gains position on the sale, which the ATO covers on its selling commercial premises page.

How does a bridging loan compare with other short-term options?

Option	Best for	Key difference
Bridging loan	Buying before selling, or settling before long-term funds arrive	Built around a defined exit; sized on peak debt across both properties
Caveat loan	Very short, urgent needs	Describes the security type; quick to put in place but generally shorter terms
Short-term business loan	Cash-flow gaps in a trading business	Usually sized on turnover, not property
Commercial property loan	Holding premises long term	A long-term facility, often the exit for a bridge

Not sure whether your situation calls for property security at all? The secured or unsecured check gives a quick steer.

Common bridging mistakes

• An optimistic sale price. Lenders and buyers both look at recent sales, not the price you hoped for. Use an agent’s written appraisal.
• Too short a term. If the property typically takes four months to sell in your area, a three-month bridge is a problem waiting to happen.
• Forgetting the costs on the way out. Agent commission, marketing and any tax on the sale all come out of the proceeds before the bridge is paid.
• No plan B. Know in advance what you’d do if the sale stalls: lower the price, extend, or refinance.

Got a purchase to settle before the money comes through?

If you can see both sides of the bridge, the property you need and the sale or refinance that will repay it, you’re most of the way there. Tell us about it in an enquiry that takes about 60 seconds. There’s no credit check when you first enquire, and your details don’t get blasted out to a long list of lenders. A real person reads what you’ve sent, thinks about the security and the exit, and calls you. Please be accurate about property values, existing debts and your timeline, because those are the figures that decide which lender is the right match first time.

Find out if a bridge fits your deal →