How does a bridging loan work?

A bridging loan works by using a property or other valuable asset as security, which lets a lender release funds quickly and check your exit plan rather than years of trading history. You pay interest only for the term, usually a few months, and then repay the full loan amount in one go once your exit route completes, whether that is a property sale, a remortgage or another confirmed source of funds. That structure is what makes a bridging loan so different from a standard business loan. It is built for speed and a short window, not for spreading a cost over years, so every part of it, from the security you offer to the way interest is charged, is designed around getting you funded fast and repaid on a clear timeline.

The bridging loan process in five steps

Most bridging loans follow the same basic sequence, whoever the lender:

1. You offer security. You put forward a property or other asset the lender can hold a legal charge over, along with details of your planned exit.

2. The lender assesses loan to value and your exit plan. They value the security, work out how much they will lend against it, and check that your repayment route is realistic.

3. You receive an offer and complete legal work. Once you accept, solicitors handle the legal charge and any conditions, similar to a standard secured loan.

4. Funds are released. Once legal work completes, money can land in your account in as little as 72 hours, which is why bridging is used for auctions and time sensitive purchases.

5. You repay in full at the end of the term. Most bridging loans are interest only, so often the capital is repaid as a single lump sum when your exit plan completes, not through monthly instalments.

The speed comes from steps one and two happening in parallel with legal work, rather than a lender waiting weeks to build a full picture of your trading history the way they might for an unsecured loan.

What security does a bridging loan need?

A bridging loan is secured against a property or other asset, and the lender's primary concern is the value of that security rather than your annual turnover or trading record.

• Loan to value (LTV): most lenders will lend up to 75% of the property's value, so the amount you can borrow is tied directly to what you are offering as security.

• First charge: the lender holds the primary legal claim on the property. This carries the least risk for the lender, so it usually comes with the most competitive rate.

• Second charge: the loan sits behind an existing mortgage or loan on the same property. Because the second charge lender is repaid after the first, this option typically carries a slightly higher rate.

The stronger your security position, meaning a lower LTV and a first charge, the more choice you will have when comparing lenders on Capitalise's panel of 130+ business finance providers.

How is interest charged on a bridging loan?

Interest on a bridging loan is charged in one of three ways, and this decides how much cash you need to find each month while the loan is running.

• Serviced interest: you pay the interest every month, so the amount you owe stays flat throughout the term. This usually works out cheapest overall, but only suits a business or property already generating enough income to cover it.

• Rolled up interest: interest is added to the balance each month and the whole amount is repaid at the end. No monthly payments are needed, which suits a refurbishment project that is not yet earning anything, though the total cost is higher because interest builds on a growing balance.

• Retained interest: the lender deducts an estimated number of months of interest from the amount you receive upfront, even though you owe the full loan amount. Some lenders refund the unused portion if you repay early, some do not.

Rates are quoted monthly rather than annually, because a bridging loan is designed to run for months rather than decades. For the full breakdown of current rates by loan to value band, plus real worked examples with every fee included, see our bridging loan rates guide.

Bridging loan borrowing at a glance

These figures are a general guide to the UK market and vary between lenders and cases. If you want to test your own numbers before applying, our bridging loan calculator estimates your monthly interest and total repayment based on the loan amount, term and rate you enter.

What is an exit strategy and why does it decide everything?

Your exit strategy is how you plan to repay the loan in full at the end of the term, and it is the single factor lenders weigh most heavily when deciding whether to approve you and at what rate. Because there are no monthly capital repayments, the lender needs real confidence that the money to clear the balance will actually turn up on time.

Common exit routes include:

• Selling the property, ideally with a sale agreed or contracts exchanged

• Remortgaging onto a commercial mortgage or standard mortgage once the property is complete or a chain resolves

• Funds arriving from another confirmed source, such as an investment, inheritance or the sale of another asset

• Refinancing onto a different bridging loan if a project is running longer than expected

A vague plan to "sell or refinance at some point" will push you into a higher rate band or a decline. Evidence such as a signed sale agreement or a mortgage offer in principle strengthens your case considerably.

Open bridging loans vs closed bridging loans

Bridging loans are structured as either open or closed, depending on how fixed your repayment date is.

• Open bridging loan: there is no fixed repayment date, only a maximum term, so you repay whenever your funds come through within that period. This suits a business that has found a property to buy but has not yet sold an existing one.

• Closed bridging loan: the repayment date is agreed upfront, based on a confirmed event like an exchange date or mortgage completion. Because the lender has more certainty over timing, a closed loan is usually priced slightly lower.

How long does it take to arrange a bridging loan?

Speed is the main reason businesses choose a bridging loan, and most of the process can move in days rather than weeks.

The exact timeline depends on how quickly your solicitor and the lender's solicitor can complete legal work, and how straightforward the property and your exit plan are.

An example of how a bridging loan works

Say your business needs £180,000 to complete on an auction property valued at £300,000, giving you an LTV of 60%. You put down the difference as your deposit and offer the property as first charge security. The lender agrees a decision in principle within 48 hours, your solicitor and theirs complete the legal work over the following two weeks, and funds land in your account in time to meet the 28 day auction completion deadline. You pay interest only each month on a serviced basis, then repay the full £180,000 six months later once you remortgage the property onto a commercial mortgage.

What happens if I cannot repay a bridging loan on time?

If your exit plan is delayed, most lenders will discuss extending the term or refinancing the loan before taking any further action, though this usually increases your overall cost through extra interest and, in some cases, an extension fee. Because the loan is secured, missing repayments or failing to repay at the end of the term puts the secured property at risk, which is exactly why lenders scrutinise your exit plan so closely before approving the loan in the first place. Building two or three months of contingency into your requested term gives you room to manage a delay without it becoming a crisis.

What can a bridging loan be used for?

A bridging loan works well anywhere speed matters more than securing the lowest possible rate.

• Buying a property at auction, where completion is usually required within 28 days

• Purchasing a property that cannot currently be mortgaged, for example one without a working kitchen or bathroom

• Keeping a property chain together if a sale falls through partway through a purchase

• Buying land or a site ahead of planning permission or a longer term development loan

• Covering a short term cash flow gap while waiting for another source of funding to land

How does a bridging loan compare to other property finance?

A bridging loan is built for a short, defined gap, whereas a commercial mortgage is repaid over up to 25 years and development finance is drawn down in stages across a build. If your project needs longer term property finance rather than a short term bridge, our property finance team can help you compare all the options side by side.

Am I eligible for a bridging loan?

Most UK registered businesses can apply for a bridging loan, and lenders weigh your security and exit plan far more heavily than your trading history or credit score. You are likely to move fastest through underwriting if you can show:

• A property or other asset to use as security

• A clear and realistic exit plan, ideally with some evidence behind it

• Details of the deposit or equity you are putting into the deal

• Recent financial statements for your business

• Information on the property or asset you are buying or refinancing

How do I apply for a bridging loan?

Applying through Capitalise is built around the same speed a bridging loan itself is designed for.

1. Tell us what your business does, what the loan is for, how much deposit you have and how much you need to borrow.

2. Gather your documents, typically your latest financial statements and details of the property and security you are offering.

3. Complete a short funding questionnaire in your Capitalise account.

4. We match your application to up to 4 lenders from our panel of 130+ most likely to approve you, with a dedicated funding specialist guiding you through to completion.

Ready to start your bridging loan application?

Now you know how a bridging loan works, the next step is putting real numbers and lenders behind your plan. Apply for a bridging loan through Capitalise and we will match you with the lenders from our panel of 130+ most likely to fund your deal, with a funding specialist on hand from application through to completion.