Commercial Property Bridging Finance: A Buyer's Guide
Commercial property bridging finance is short-term debt used to fund a property acquisition while a longer-term takeout (typically a major bank commercial loan, a property sale, or refinance) is being arranged. The structure is well-precedented in Australian commercial property; the costs are materially higher than mainstream commercial lending; and the specific use cases that justify bridging are narrower than the marketing of bridging products often suggests.
Used well, a bridge buys time while a permanent facility is put in place. Used badly, it adds cost and enforcement risk to a deal that was never bankable to begin with. Working out which situation you are actually in is most of the decision.
Bridging is a tool, not a strategy. It works when the exit path is clear and the cost is justified by what the deal delivers. It fails when it is used to avoid solving an underlying finance problem rather than a timing one.
What Bridging Finance Actually Is
A commercial bridging loan is a short-dated facility, typically 1 to 24 months, secured against commercial property with a documented exit strategy. It is built for a specific job rather than sold as a general lending product. What defines it:
- Short term (1 to 24 months typical).
- Higher interest rates than mainstream commercial lending.
- Interest typically capitalised rather than paid monthly (the loan grows; principal repaid at exit).
- Specific exit strategy documented at origination (refinance, sale, lease-up completion).
- Faster origination than mainstream lending.
1 When Bridging Is the Right Tool
Auction acquisition with refinance to follow
A buyer wins at auction without finance pre-approved. The bridge funds the acquisition and a major bank takeout follows in 60 to 90 days.
Sale-then-purchase sequencing
A buyer is settling a new property before the sale of an existing one completes. The bridge covers the timing gap.
Pre-development acquisition
A buyer takes a site with development upside. The bridge funds acquisition, then refinances to a construction loan once approval is in place.
Lease-up completion
A buyer takes a partially-vacant building with strong lease-up prospects. The bridge funds acquisition at a lower LVR than a full-tenancy stabilised asset would carry, then refinances to standard commercial after stabilisation.
Distressed sale or fast turnaround
Settlement is needed within 14 to 30 days and the mainstream commercial timeline cannot meet it. Bridging is the only practical path.
2 Lender Tiers
Tier 1: Major bank short-dated facilities
A few major banks offer short-dated bridging facilities as part of relationship lending. Rates sit closer to mainstream commercial, and the facilities are available to existing major bank customers with strong covenant.
Tier 2: Specialist commercial bridging lenders
Specialist non-bank lenders focused on commercial bridging: Liberty Financial, Pepper Money, La Trobe Financial, Thinktank and others. Origination is faster and criteria more flexible, with rates 100 to 400 basis points above mainstream.
Tier 3: Private credit and family-office lenders
Private credit funds and family offices lending against commercial property. Rates are the highest (10% to 18% common), origination the fastest, and they are the most flexible on borrower profile and structure.
3 Rate and Cost Structure
Pricing moves with lender tier, LVR, asset class and borrower profile. The usual ranges:
- Major bank bridging. Cash rate plus 3% to 5%.
- Specialist non-bank. Cash rate plus 5% to 8%.
- Private credit. 10% to 18% per annum.
Origination fees (1% to 3%), legal fees and valuation costs add 2% to 5% to the effective cost. Exit fees, where they apply, add more.
4 Loan-to-Value and Coverage
Bridging lenders usually cap LVR at 60% to 70% of acquisition price, sometimes higher with specialist lenders and lower for distressed assets. Interest cover ratio matters less than in mainstream lending because the interest is typically capitalised rather than serviced.
5 The Exit Strategy
Every bridging loan carries an exit strategy from origination, and the exit is what decides whether the bridge is workable.
Refinance to mainstream commercial
The most common exit. The buyer-side risk is that the mainstream lender values the asset differently from the bridging lender. A bridge sized at 65% LVR with a planned refinance at 60% LVR needs additional equity at refinance.
Sale
The buyer sells either the bridged asset or another to repay the bridge. Sale timeline is the principal exit risk; a bridge that overruns the expected sale date compounds fast.
Construction loan
For development-purpose bridges, the construction loan is the exit. Its approval timeline and conditions need to be understood at bridge origination.
Pre-arranged refinance
Some bridges are written with the takeout lender already approved. That carries the lowest exit risk, and it is rare in practice.
6 Common Pitfalls
Underestimating total cost
Headline interest rate plus origination fee plus legal plus exit fee can push the effective annualised cost well above the quoted rate. Run the full cost-of-bridge calculation before you commit.
Exit strategy that doesn't clear
The mainstream refinance takes longer than expected, the planned sale does not complete, the construction loan approval is delayed. Bridge interest compounds and the borrower's equity is consumed.
Default consequences
A bridging loan default triggers fast enforcement. Specialist bridging lenders typically run streamlined enforcement processes, and the cost of default escalation is high.
Using bridge to fix a finance problem rather than time problem
If the buyer cannot get mainstream commercial finance on the asset, the bridging refinance is unlikely to work either. Bridging solves timing gaps, not inherent finance unsuitability.
7 Buyer-Side Decision Framework
Before taking a bridging loan, the buyer-side analysis should confirm:
- The mainstream takeout (or sale) is realistic and not contingent on factors outside the borrower's control.
- The total bridging cost is justified by the opportunity it captures.
- The borrower has reserve equity if the bridge runs longer than planned.
- The bridging lender's terms are competitive against alternative bridging providers.
- The exit lender (for refinance bridges) has indicated appetite for the takeout.
Frequently Asked Questions
What's the longest bridging term available?
24 months is the typical maximum; some specialist lenders offer up to 36 months. Beyond that, the economics of bridging usually make a refinance to mainstream the better option.
Can bridging be used for SMSF acquisition?
Rarely. The LRBA structure required for SMSF lending is not well served by bridging products; most SMSF acquisitions use a direct LRBA from mainstream commercial lenders.
Are there bridging products for residential?
Yes, but commercial bridging and residential bridging are different products with different lender pools. The focus here is commercial; residential bridging runs on its own dynamics.
What happens if the bridging loan defaults?
The lender enforces against the secured property. Specialist bridging lenders enforce quickly, and a sale of the asset to recover the loan can be rapid. Borrower equity ranks junior, so recovery can be partial or nil if the asset has fallen in value.
