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 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.
This guide covers when bridging finance is appropriate, the lender tiers operating in the Australian market, typical rate ranges and structures, the exit strategy framework that determines whether a bridge is workable, and the common pitfalls.
Bridging is a tool, not a strategy. It is the right answer when the exit path is clear and the cost of the bridge is justified by what it unlocks. It is the wrong answer when it is being used to avoid solving the underlying finance problem.
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 clear exit strategy. The structure is purpose-fit-for-purpose rather than a general lending product. Key characteristics:
- 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
The buyer wins at auction without finance pre-approved. Bridge funds the acquisition; major bank takeout in 60 to 90 days.
Sale-then-purchase sequencing
The buyer is acquiring a new property before settling the sale of an existing property. Bridge covers the timing gap.
Pre-development acquisition
The buyer is acquiring a site with development upside. Bridge funds acquisition; refinance to construction loan once approval is in place.
Lease-up completion
The buyer is acquiring a partially-vacant building with strong lease-up prospects. Bridge funds acquisition at lower LVR than full-tenancy stabilised; refinance to standard commercial after stabilisation.
Distressed sale or fast turnaround
The buyer needs to settle within 14 to 30 days; mainstream commercial timeline is incompatible. Bridge is the only practical path.
2 Lender Tiers
Tier 1: Major bank short-dated facilities
Some major banks offer short-dated bridging facilities as part of relationship lending. Rates closer to mainstream commercial; 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, others. Faster origination, more flexible criteria, 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. Highest rates (10% to 18% common), fastest origination, most flexibility on borrower profile and structure.
3 Rate and Cost Structure
Bridging finance pricing varies widely by lender tier, LVR, asset class, and borrower profile. Typical 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 applicable, add further cost.
4 Loan-to-Value and Coverage
Bridging lenders typically cap LVR at 60% to 70% of acquisition price, sometimes higher for specialist lenders and lower for distressed assets. Interest cover ratio is less critical than in mainstream lending because interest is typically capitalised.
5 The Exit Strategy
Every bridging loan has an exit strategy at origination. The exit determines whether the bridge is workable:
Refinance to mainstream commercial
Most common exit. The buyer-side risk is that the mainstream lender's view of the asset differs from the bridging lender's. A bridge sized at 65% LVR with a planned refinance at 60% LVR requires additional equity at refinance.
Sale
The buyer plans to sell either the bridged asset or another asset to repay the bridge. Sale timeline risk is the principal exit risk; bridges that overrun expected sale timelines compound rapidly.
Construction loan
For development-purpose bridges, the construction loan provides the exit. The construction loan approval timeline and conditions need to be understood at bridge origination.
Pre-arranged refinance
Some bridges are taken out with the takeout lender already approved. Lowest exit risk; rare in practice.
6 Common Pitfalls
Underestimating total cost
Headline interest rate plus origination fee plus legal plus exit fee can produce effective annualised costs materially above the quoted rate. The full cost-of-bridge calculation is essential.
Exit strategy that doesn't clear
The mainstream refinance takes longer than expected, the planned sale doesn't complete, the construction loan approval is delayed. Bridge interest compounds; the borrower's equity is consumed.
Default consequences
Bridging loan defaults trigger fast enforcement. Specialist bridging lenders typically have streamlined enforcement processes; 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 works for timing gaps, not for 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 unlocked.
- 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 typical maximum; some specialist lenders offer up to 36 months. Beyond that, bridging economics typically make refinance to mainstream the better option.
Can bridging be used for SMSF acquisition?
Limited applicability. The LRBA structure required for SMSF lending is not well-served by bridging products; most SMSF acquisitions use 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. This guide covers commercial; residential bridging has its own dynamics.
What happens if the bridging loan defaults?
The lender enforces against the secured property. Specialist bridging lenders have streamlined enforcement; sale of the asset to recover the loan can be rapid. Borrower equity is junior; recovery can be partial or nil if the asset has fallen in value.