How much does a bridging loan cost?

Interest, arrangement fee, valuation, legals, and the exit that quietly decides the total. A worked example and the honest way to compare offers.

The answer in forty words

A commercial bridging loan typically costs between 0.6% and 1.2% a month in interest, plus an arrangement fee of around 2%, a valuation, and legal fees on both sides. On a £300,000 loan over six months, expect a total cost in the region of £22,000–£34,000.

The four parts of the cost

• Interest — quoted monthly, not annually. 0.6–0.9% a month for straightforward commercial security at sensible loan-to-value; 1% or more for heavier LTV, unusual assets, weaker exits or the fastest completions.
• Arrangement fee — commonly 2% of the loan, sometimes 1–1.5% on larger cases, usually added to the loan rather than paid up front.
• Professional fees — the lender’s valuation (£1,000–£3,000 on commercial property), the lender’s solicitors (£1,500–£3,000) and your own solicitors. Some lenders charge an administration or exit fee of around 1%.
• Broker fee — some brokers charge the borrower; we are remunerated by the lender on completion and tell you the amount, so our fee does not sit on top of the cost of the money.

A worked example

£300,000 bridge, six months, 0.85% a month, 2% arrangement fee, interest retained:

• Interest: £300,000 × 0.85% × 6 = £15,300
• Arrangement fee: £6,000
• Valuation and legals, both sides: roughly £5,000
• Total: about £26,300, or 8.8% of the loan for six months’ money.

If the exit slips by three months, add another £7,650 of interest plus any extension fee. This is why the exit is the number that actually sets the cost.

Retained, rolled up or serviced — which is cheapest?

Serviced interest (paid monthly) is cheapest overall because nothing compounds, but the lender has to be satisfied you can afford the payments. Retained interest is deducted from the advance on day one, so you receive less but pay nothing monthly. Rolled-up interest accrues onto the balance and compounds, so it is the dearest if the term runs long. For most commercial borrowers with a firm exit, retained is the practical choice.

What pushes the price up

• Loan-to-value — above 65–70% the rate steps up quickly.
• The exit — a sale in solicitors’ hands prices better than “we’ll refinance”.
• The asset — offices and industrial units price better than land without planning, licensed premises or part-built schemes.
• Speed — a five-day completion costs more than a three-week one.
• The file — a case that arrives pre-underwritten, with valuation access, solicitors instructed and the exit evidenced, avoids the delays that turn into extension fees.

How to compare two offers

Never compare headline rates. Compare the total cost of the money over your realistic term, including every fee, and then ask what happens to that number if the exit slips three months. A 0.75% offer with a 2% fee and a 1% exit fee is frequently dearer over six months than a 0.9% offer with no exit fee. We run that arithmetic on every case before anything is recommended — it is the part of the job a chartered accountant is for.

Is it worth it?

Bridging earns its cost when the profit or the saving it unlocks clearly exceeds the price of the money — an auction bargain, a VAT reclaim, a purchase that would otherwise be lost, works that lift a property’s value. It does not earn its cost as a substitute for long-term finance or as a way to fund trading losses. If the honest need is three-year money, we will say so. Start with what a bridging loan is or the mechanics in how a bridging loan works.