What is a bridging loan?

Short-term, secured, repaid in one go from a defined exit. Here is what a bridging loan actually is, how it differs from a mortgage or business loan, and when it is the right tool.

The answer in forty words

A bridging loan is a short-term loan, secured on property, that covers the gap between a deadline you cannot move and money that is on its way. It runs for months rather than years, is priced monthly, and is repaid in one go from a defined exit — a sale, a refinance or a receipt.

What makes it different from a mortgage or a business loan

• Term — three to eighteen months is typical, twenty-four at the outside. A mortgage runs for decades; a business loan for years.
• Speed — days to a few weeks. Lenders underwrite the security and the exit, not three years of trading history.
• Pricing — quoted as a monthly rate, commonly between 0.6% and 1.2% a month for commercial bridging, plus fees. Dearer than term money, because it is faster and shorter.
• Repayment — usually nothing monthly. Interest is retained or rolled up and the whole balance is repaid at the end from the exit.
• Purpose — a timing problem. If the need is really long-term money, bridging is the wrong tool and will cost you a premium to find that out.

How it works, step by step

1. You have a deadline — an auction completion, a purchase before your sale completes, a VAT bill on a commercial property, a refurbishment that has to finish before a mortgage lender will lend.
2. You have security — the property being bought, one you already own, or both. The lender takes a legal charge over it.
3. You have an exit — the specific, evidenced event that repays the loan. This is what the lender really underwrites.
4. The lender values the security and offers a loan-to-value, usually 65–75% for commercial property.
5. Funds are released, often with the interest for the expected term deducted up front, and the clock starts.
6. The exit happens and the loan, plus interest and any exit fee, is repaid in one payment.

What it costs

Three things: the monthly interest, an arrangement fee of around 2% of the loan, and the professional costs — valuation, the lender's solicitors and your own. Some lenders add an exit fee. The headline rate is only part of the picture; on a six-month bridge the fees can matter more than the rate, which is why we cost the whole loan over your realistic term before recommending anything. There is a fuller breakdown in how much does a bridging loan cost.

Regulated or unregulated?

If the security is a home you or a family member lives in, the loan is regulated consumer lending. If the borrower is a business and the security is commercial or investment property, it is unregulated commercial lending — the market we arrange in. We work with limited companies; we do not advise on or arrange consumer credit, and nothing on this page is regulated financial advice. More on this in unregulated bridging loans.

Who uses bridging, and for what

• Auction buyers — exchange on the hammer, complete in 28 days.
• Commercial property buyers funding the VAT until HMRC repays it.
• Developers and landlords funding works before refinancing on the improved value.
• Businesses buying before selling — new premises before the old ones complete.
• Landowners funding a purchase, a planning application or a tax bill against land.
• Owners raising capital quickly against property they already hold, sometimes as a second charge.

The question to answer before anything else

How is it repaid? A credible exit is specific and evidenced — a sale in solicitors’ hands, a refinance with an agreement in principle, a VAT reclaim with the computation done. If you cannot answer that in one sentence, you are not ready to bridge, and an honest adviser will say so. If you can, a well-prepared case can be funded in days. The mechanics — interest types, timing, the exit in detail — are in how does a bridging loan work.