Bridging Finance Explained: How Bridging Loans Work for UK Businesses

Bridging finance, sometimes referred to as a bridging loan, is a short-term loan used by business owners for immediate relief from cash flow pressure. It comes up when there’s a gap between needing to pay for something and receiving capital from a sale or securing longer-term funding. Property owners turn to this type of loan when timing is a concern. For example, when the right premises become available and the seller wants a fast turnaround on the sale.

It is also expensive. The monthly rates, arrangement fees and legal costs add up quickly, and there is a risk of losing the property if you cannot repay the loan as planned. This guide explains how bridging loans work in the UK SME space, what they cost, the main types of bridging finance, who they suit and what alternatives are available.

What Is a Bridging Loan?

As the name suggests, a bridging loan is designed to “bridge” a gap between the funds a business needs now and money it expects to receive later. This could be the proceeds from a property sale, a refinance, or another confirmed source of repayment. Bridging loans are therefore a form of short-term borrowing, lasting about 12 to 18 months.

Bridging loans are secured against an asset, most commonly property. Lenders will typically consider the value of the security alongside the borrower’s ability to repay the loan. This can make bridging finance different from some forms of traditional business lending, where greater emphasis may be placed on trading history, profitability and credit history. 

Residential as well as commercial property markets use bridging finance. Residential bridging loans can be secured against houses and flats and may be used by homeowners, landlords and property investors. Commercial bridging loans, meanwhile, can be secured against business premises such as shops, offices, industrial units and mixed-use buildings. This article focuses on the business use case.

The regulatory position depends on the property being used as security, the borrower and the structure and purpose of the loan. Some bridging loans secured against residential property can fall within the FCA’s regulated mortgage regime, while loans secured solely against commercial premises are not regulated mortgage contracts.

How Does a Bridging Loan Work?

You can find bridging loans being referred to as gap finance or a swing loan. No matter what it’s called in the business environment, you end up following the same five-step process:

1. The business owner identifies the need and the property to borrow against: The need could be purchasing new business premises before a longer-term finance is in place.
2. The lender assesses the deal: This involves reviewing the property, the loan-to-value and, most importantly, your exit strategy.
3. The property is valued: Typically carried out by an independent surveyor, often at your cost.
4. Solicitors complete the legal work: Once the legal work is completed, the lender releases the funds.
5. You repay the loan in full: At the end of the term, you repay the original amount borrowed through the agreed exit, such as the sale of a property or refinancing with longer-term finance.

Bridging loans are interest-only, therefore nothing you pay during the term reduces the borrowed amount, and the capital is repaid in one go through the agreed exit. 

Factors to Consider

• Loan to Value

Or LTV for short, this is the loan as a percentage of the property’s value. It determines how much you can borrow against the property and can affect the rate you are offered. Borrowing £450,000 against premises worth £750,000 is 60% LTV. In the business environment, lenders cap LTV at around 65% to 75%, with lower LTVs often attracting sharper rates.

• Your Bridging Loan Exit Strategy

How the loan is going to be paid in full. Repayments can be through a sale that has already completed or is expected to complete, a refinance onto a commercial mortgage, or another confirmed source of funds. Lenders treat it as one of the most important parts of the application because the whole loan depends on having a clear way to repay it. An exchanged sale or a mortgage offer carries far more weight than a vague plan to sell.

• How Long It Takes

One of the main attractions of bridging finance is speed. Many businesses can go from first inquiry to funds in a matter of weeks, although title problems, valuations and legal work can add time. Recent records show an average completion time of 46 days in the second quarter of 2026, down from 53 days in the first quarter.

A commercial mortgage usually takes around 6 to 12 weeks to complete, so bridging can be useful when a business needs to complete a purchase before longer-term finance can be arranged.

Types of Bridging Loan

Bridging loans are grouped in two ways: how the exit is set up (closed or open) and where the lender ranks (first or second charge)

• Closed and Open Bridging Loans

Closed loans have fixed repayment dates that are linked to a confirmed event, such as a sale where contracts have been exchanged. Lenders then know when and how it will be repaid, meaning the risk is lower and so is the price. This results in short terms in the range of months, sometimes even weeks.

An open bridging loan has a planned exit but no fixed date. For example, a property may be intended for sale but does not yet have a buyer. The loan is repaid when the money arrives, within the maximum term, which is often around 12 months and sometimes longer. That flexibility suits uncertain timing, but it also means a higher rate and more questions about the exit.

• First Charge and Second Charge Bridging Loans

With a first charge bridging loan, the lender is first in line to be repaid if the property is sold. This is the case when the property has no mortgage, or when the bridge pays off the existing one. Since the lender has priority, rates are generally lower, and lenders may advance more against the property.

A second charge sits behind an existing mortgage or lender. If the property is sold, the first lender is repaid in full before the bridging lender gets anything, so rates are generally higher. How much you can raise depends on the equity left over, and you’ll usually need the written consent of the first charge holder. That can take time, so raise it early if your bank already holds a charge.

What Does Bridging Finance Cost?

The advertised interest rate charged on the loan is a single cost component when it comes to bridging finance. These rates are also quoted and charged on a monthly basis with commercial loans costing anywhere from around 0.75% to 1.25% per month for a first charge, depending on the deal, while second charge loans typically cost more.

When compared with the annual rates on most other types of borrowing, these numbers can look lower than they really are. Multiply the monthly rate by 12 to get a simple annual comparison: 0.9% a month is 10.8% a year before fees. So, on a £450,000 loan, 0.9% works out to £4,050 in interest per month, or £48,600 over 12 months if the interest is paid monthly and does not change.

If the interest is rolled up and added to the balance each month, the cost is higher because you are then paying interest on the accumulated interest as well. At 0.9% a month, the equivalent annual cost with monthly compounding is about 11.35% before fees.

Ways Interest Is Charged

• Serviced: Interest is paid monthly during the term. This means you need enough cash flow to cover the interest payments, but the interest does not build up on the loan balance.
• Rolled up: Interest is added to the loan balance and repaid at the end. There is nothing to pay each month, but the balance grows as interest is added, which means the total cost is usually higher.
• Retained: The lender holds back the interest upfront from the amount you borrow, based on the agreed term. There are no monthly interest payments, but less cash reaches you at the start of the loan. How any unused interest is treated if you repay early depends on the lender and the terms of the loan.

Bridging Loan Fees: A Worked Example

Here’s the full cost of borrowing £500,000 against a warehouse worth £800,000 (62.5% LTV) for 12 months at 0.9% a month, with interest serviced.

The total comes to 16.3% of the loan, well above the headline 10.8% a year. Without the exit fee, it would be £76,500.

When a Business Bridging Loan Makes Sense

• It’s a useful tool when securing a commercial property needs to be done quickly, usually when the seller wants to complete sooner than a mortgage lender can.
• Buying at auction, as a traditional auction would give you 28 days to complete the purchase. Missing the deadline can cost you your 10% deposit.
• Bridging can fund works that lift a property’s value, so you can borrow more when you refinance. However, ground-up builds and major conversions need development finance instead.
• Buying new premises before the old ones sell, with the sale proceeds clearing the loan.
• Releasing equity from property you already own, where the repayment route is confirmed.

When to Avoid Business Bridging Loans

• Wages, stock and bills are working capital needs, and bridging is an expensive way to cover them.
• Deals with an uncertain exit are not ideal for these types of loans, as extension fees and default interest can build rapidly.
• Businesses with no property to borrow against.
• Long-term finance needs are not suitable for bridging loans.

Risks and Things to Check Before You Borrow

Exit is very important when it comes to this type of loan. If a sale falls through or refinance is declined, you face extension fees, default interest and finally repossession. Default interest rates are higher than the regular rates and they are charged once you miss the repayment date or breach the terms. It’s 1% to 3% a month on top of the normal rate that’s about £5,000 to £15,000 extra every month on a £500,000 loan. 

If you can’t repay, the lender can repossess and sell the property. Directors are often asked for personal guarantees too, which puts their own assets at risk. Our personal guarantee guide gives an insight into what you’d be signing up for.

Before formalising a bridge loan agreement, check:

• the total cost over the full term, including every fee
• what happens if your exit is delayed, and what an extension costs
• whether there’s an exit fee, early repayment charge or minimum interest period
• who the actual lender is, as some brokers present themselves as lenders

Is Bridging Finance Right for Your Business?

Bridging finance is great for moving fast on a property deal when the exit is clear and time is short. It’s also expensive and unforgiving if the exit fails, so match it carefully to the need in your business.

Many businesses that look into bridging are sometimes trying to solve a trading problem. Maybe they need money for stock, a refit, equipment, a quiet quarter or an unexpected bill. Bridging is a poor fit for these needs because it requires property as security and demands repayment in one lump sum at the end of the term.

If you’re weighing up short-term business loans for costs like these, revenue-based finance from 365Finance is designed for them:

• No property or asset security needed
• Funding based on your trading performance and card takings
• No APR, with a fixed cost agreed at the outset
• Repayments taken as a share of card sales, so they rise and fall with your revenue
• Perfect for businesses with variable or seasonal trading

Get a quote in a few minutes and you’ll usually have a decision within 24 hours.