How does a bridging loan actually work?

Short-term money, secured on property, that exists to solve a timing problem. Here is how it genuinely works — what it costs beyond the headline rate, why the exit decides everything, and when bridging is the wrong answer.

The one-sentence version

A bridging loan is a secured loan, usually running three to eighteen months, that gets you from a deadline you cannot move to money that is coming but hasn't arrived — a sale completing, a refinance being arranged, a VAT reclaim landing, planning being granted. It is priced for speed and certainty, not for cheapness, which is precisely why the only question that matters is how it gets repaid.

What it's secured on, and how much you can borrow

Security is a legal charge over property — the one being bought, one already owned, or both. Lenders talk in loan-to-value: for commercial bridging, the workable range typically sits around 65–75% of the property's value, less for unusual assets, and more only when additional security is offered. The valuation the lender commissions, not the price you agreed, is the number that counts.

How the interest actually works

Bridging interest is quoted monthly, and how you pay it changes the sums:

• Retained — the expected months of interest are deducted from the advance up front. You receive less on day one but make no monthly payments; the loan you repay includes the retained interest.
• Rolled up — interest accrues and compounds onto the balance, all repaid at exit. Nothing to pay monthly, but the debt grows every month the exit slips.
• Serviced — you pay the interest monthly, like a mortgage. Cheapest overall, but the lender must be satisfied you can afford the payments.

On top of interest: an arrangement fee (commonly around 2% of the loan), the valuation, the lender's legal costs as well as your own, and sometimes an exit fee. When you compare offers, compare the total cost of the money over your realistic term — a lower rate with a higher fee is frequently the dearer loan on a six-month bridge. This is arithmetic we do as standard before anything is recommended.

The exit is the whole deal

Every bridging application stands or falls on one question: how is it repaid? A credible exit is specific and evidenced — a sale already in solicitors' hands, a refinance with an agreement in principle, a VAT reclaim with the computation done. "We'll refinance nearer the time" is not an exit; it is a hope. Lenders price weak exits harshly or decline them, and borrowers with weak exits are the ones who end up in expensive extensions.

Our rule as your adviser is blunt: if we cannot see the exit clearly enough to defend it to a credit committee, we will tell you not to borrow. A bridge with no exit is how good businesses get into bad trouble.

How long it takes

Days to a few weeks, depending on the asset and how prepared you are. The genuine speed lever is the file: valuation access sorted, solicitors instructed who know bridging, accounts and ID ready, exit evidenced. A pre-underwritten case — our standard preparation — removes the query-and-wait cycles that add weeks.

Regulated and unregulated — which is this?

Bridging secured on a home you or family live in is regulated lending. Bridging to a business, secured on commercial or investment property, is unregulated commercial lending — that is the market we work in. We arrange commercial finance for limited companies; we do not advise on or arrange consumer credit, and nothing here is regulated financial advice.

The situations where bridging genuinely earns its cost

• Funding the VAT on a commercial property purchase while you wait to reclaim it from HMRC.
• Auction purchases — contracts exchange on the hammer and completion is typically 28 days; term finance rarely moves that fast.
• Buying before selling — securing premises or land before an existing asset completes.
• Raising capital behind an existing mortgage without disturbing a first charge you want to keep.
• Refurbishment — funding works that make a property lettable or saleable, exiting to a mortgage on the improved value.
• A time-limited business opportunity where the profit comfortably exceeds the cost of short money.

And when it's the wrong answer

Bridging is the wrong tool for long-term needs, for plugging trading losses, or for any situation where the exit is a hope rather than a plan. If the honest requirement is three-year money, a twelve-month bridge merely postpones the problem at a premium price. Part of what you get from an adviser who is a chartered accountant is that we run those numbers first — and if the answer is "don't bridge," that is the answer you will hear.