Bridging finance, and why the exit is the whole product

What bridging is for

Bridging is short-dated lending secured on an asset, taken to hold a position while something else completes. It is priced by the month rather than by the year, and it is the most expensive money in ordinary business finance for a simple reason: speed and flexibility cost, and the lender is taking a concentrated risk over a short period.

The exit is the product. Everything else about a bridge is arithmetic around the question of how it gets repaid: a sale that is under offer, a longer-term facility that is agreed but not yet drawn, a refinance that needs a trading period first. A bridge with a certain exit is a sensible tool. A bridge with a hopeful one is an expensive way of putting a deadline on a problem you have not solved.

How it is secured and priced

Security is normally a legal charge over property, first or second, and sometimes over other assets alongside it. The lender sizes the loan against value rather than against price, and against the gross loan, which is the point buyers miss.

Interest is usually retained or rolled up rather than paid monthly. On a retained-interest facility the lender deducts the interest for the full term from the advance at the start, so the money that reaches you is materially less than the facility figure. Budgeting from the headline number rather than the net release is how a deal ends up short at completion.

Around that sit an arrangement fee, an exit fee on some products, valuation and legal costs on both sides, and, most importantly, the position if the term is overrun. Most facilities move to a default rate when the loan runs past its end date, and that rate is the one that turns a manageable cost into a serious one. Ask what happens at the end of the term before signing, not when the sale slips.

One question is worth asking explicitly on any bridge: whether the security includes a home the borrower lives in. A loan secured on a residence is treated differently from one secured on commercial or investment property, and the protections attached to each are not the same. Any lender will tell you which category an offer falls into if asked directly.

Where it earns its place in an acquisition

There are a handful of situations where bridging is genuinely the right answer rather than a rescue.

A seller's deadline that a term facility cannot meet. Where the alternative is losing the deal, the cost of a few months is measured against that, not against a cheaper loan that will not arrive in time.
Buying premises at auction, where completion is fixed and a commercial mortgage cannot be delivered inside the window. The mortgage becomes the exit rather than the entry.
A buyer's contribution locked in a property that is selling but has not completed. The bridge funds the equity contribution and the sale repays it.
A business that needs a trading period before it can be refinanced. Some lenders will not look at a target under new ownership until it has filed figures of its own, and a bridge covers the interval before refinance.
A property that has to be improved before it is lettable. Where works are needed to reach a lettable standard, a term lender may not fund it in its current condition.

What bridging should not be doing is standing in for senior term debt because nobody has yet found a lender for the acquisition. That is not a bridge to anywhere.

Who it suits, and who it does not

It suits a borrower with a defined, evidenced exit and enough margin in the deal to absorb the cost. It suits a situation where speed genuinely creates value, such as securing a property or a business that would otherwise go elsewhere. And it suits people who have done it before and know what the paperwork demands.

It does not suit a first-time buyer using it to buy time on a deal that has not been underwritten by anybody. It does not suit a business hoping trading will improve enough to refinance, because hope is not an exit. And it does not suit anyone who cannot comfortably fund an overrun, because overruns are the normal case rather than the unusual one.

What goes wrong

The exit slips. Sales fall through, valuations come in under offer, and term lenders take longer than anyone plans for. Build the timetable with real slack rather than the best case.

The retained interest runs out. Once the retained period ends, the loan is on default terms, and the cost changes character.

The net advance was smaller than the plan assumed. Retained interest, the arrangement fee and legal costs all come out before the money arrives.

The second charge needed consent that never came. Where there is an existing lender, its agreement to sit ahead of a bridge is a negotiation with its own timetable.

Nobody underwrote the exit facility. Taking a bridge before knowing that the long-term lender exists, and what it will want, is the failure that makes all the others worse.

What a lender will want to see

Evidence of the exit: a sale contract, an offer letter, or a facility agreed in principle.
The security, the title and any existing charges over it.
A realistic timetable, with the point at which the exit is expected to complete.
What happens if it does not, and who funds the overrun.
The purchase paperwork where the bridge is part of an acquisition.

Unfamiliar terms on a bridging offer are in the glossary, and the general order lenders ask for a file is in the document checklist.

Being told honestly when a bridge is the wrong idea

Short-term lenders are quick, and quick is not the same as right. A market that prices by the month has no reason to talk anyone out of a facility, so the question of whether the bridge is a good idea usually goes unasked.

What we know is this market and the people in it, which means we can tell you whether the exit you are relying on is one a term lender will actually deliver before you pay for a bridge to reach it. Tell us the timetable and we come back to you having spoken to the right people.