Bridging loans: how they work, what they cost and when to use one

A bridging loan is a short-term loan, usually secured on property, that covers a gap in your finances until a sale or longer-term funding repays it. The British Business Bank describes business bridging loans as a short-term financial solution for businesses of all sizes: they bridge a gap and are not a permanent source of funding.

The lender normally takes security and lends a percentage of its value. That percentage is the loan-to-value ratio, or LTV. A lower LTV means more of your own money is in the deal, which a lender treats as lower risk. Maximum LTVs differ by lender and by property, so we do not quote one here. Bridging is one of the property finance options in our business finance guides.

You borrow against a property, interest runs for the term, and you repay the whole loan in one go when your sale or refinance completes. A typical case runs like this:

1. Define the gap. Work out how much you need, what it will be secured on and what will repay it.
2. Apply with the property details and your repayment plan. Lenders call that plan the exit.
3. The lender instructs a valuation and its solicitors check the title. Each lender assesses the case against its own criteria, subject to status.
4. You receive an offer setting out the amount, the term, the interest and every fee. Take legal advice before you sign.
5. The loan completes and the lender’s charge is registered against the property.
6. Interest runs for the term. Depending on the loan, you pay it monthly or it is added to the balance.
7. You repay the loan in full from the sale proceeds or the new facility, and the charge is released.

The British Business Bank points out that because bridging is not a long-term solution, your business may need a plan for further financing when the loan period ends. For a business that is keeping the property, that plan is usually a refinance onto a commercial mortgage.

Bridging loans are described by whether they have a fixed repayment date, where the lender’s charge ranks and how the interest is paid.

Some lenders instead deduct the interest for the whole term from the money they advance, often called retained interest. You then receive less than the headline loan, so check the net amount you will actually get.

Most bridging loans to businesses are not regulated mortgage contracts, but a loan to an individual secured on a home that they or a close relative live in usually is. The legal test has three parts: the lender provides credit to an individual or to trustees, the loan is secured by a mortgage on land, and at least 40% of that land is used, or intended to be used, as or in connection with a dwelling by the borrower or a related person.

• A related person is the borrower’s spouse or civil partner, a partner in an equivalent relationship, or a parent, brother, sister, child, grandparent or grandchild.
• The definition covers credit to an individual or to trustees, so on that wording a loan to a limited company falls outside it.
• FCA guidance says loans secured on commercial premises are not regulated mortgage contracts, because the property will not be used as a dwelling.
• The law also excludes certain loans taken out wholly or predominantly for business purposes. Whether an exclusion applies depends on the facts, so ask the lender and your solicitor which side of the line your loan sits.

Where a bridging loan is regulated, the FCA’s definition is broadly a regulated mortgage contract with a term of twelve months or less. The lender must have evidence that you have a clearly understood and credible repayment strategy, and must not accept a speculative one. FCA data show 4,691 regulated bridging loans were sold in 2025, worth about £1.83bn. That figure covers regulated loans only. We found no official figure for the whole market, including unregulated business bridging.

Bridging lenders look first at the security and at how the loan will be repaid, then at you and your business.

• The property: its type, condition and value, and any charges already registered against it.
• The loan-to-value ratio: how much you want to borrow against what the valuer says the property is worth.
• The exit: evidence that the sale or refinance is realistic, such as an agreed sale or terms from a longer-term lender.
• You and the business: your experience, your credit history and the business’s accounts.
• A personal guarantee: directors of a limited company may be asked for one, which makes them personally liable if the business cannot repay. Read our guide to personal guarantees for business borrowing before you agree to one.

Every lender sets its own criteria and no lender is obliged to lend. A full application may involve a hard credit search.

A bridging loan costs interest plus several fees, and on a short loan the fees can matter as much as the rate. We do not quote rates, because they depend on the lender, the property and your circumstances.

Ask every lender for the total cost in pounds over the term you expect, and again for the cost if the loan runs over. Comparing that single figure is the method we set out in our guide to comparing lenders on total cost.

If you are buying, Stamp Duty Land Tax in England and Northern Ireland, or the Scottish or Welsh equivalent, is a separate cost on top. Capzy does not give tax or legal advice, so check the figures with your solicitor or accountant.

The main risk is that your exit is late or falls through, leaving a secured loan you cannot repay on the due date.

• A sale can be delayed or collapse, and a buyer can ask for a lower price.
• A refinance can be declined, or offered for less than you need, if the valuation or your figures change.
• Rolled-up interest keeps growing, so every extra month reduces what you have left after repayment.
• Running past the agreed date can bring extra interest and fees, depending on the agreement.
• A personal guarantee puts your own assets behind the debt as well.

A bridging loan is the right tool for a one-off, time-limited gap with an evidenced way to repay it. It can fit when:

• You need to complete on new premises before the sale of your existing property goes through.
• A purchase has a fixed deadline that longer-term finance cannot meet, such as an auction.
• The property needs work before a longer-term lender will consider it.

It is the wrong tool when:

• You need working capital or are covering trading losses. A short, secured loan adds pressure to a recurring problem.
• Your exit is a hope and not a plan. If you cannot say how and when the loan is repaid, do not borrow.
• You could not absorb the extra cost if the exit ran late.
• Longer-term finance could complete in time anyway.

The main alternatives are a commercial mortgage arranged in time, finance raised against other assets, and an unsecured loan for a smaller sum.

• A commercial mortgage: slower to arrange, but built to be held for years where a bridge is not.
• Asset refinance: releasing cash from equipment or vehicles your business already owns, covered in our guide to asset finance.
• An unsecured business loan: no property is charged, although lenders typically ask for a personal guarantee.
• Renegotiating the timetable: a later completion date can remove the gap altogether.

Capzy is a credit broker, not a lender: we introduce your business to lenders that offer bridging finance and help you compare what comes back. We are paid by the lender. You can check your funding options with a soft search, which does not affect your credit score; a full application to a lender may involve a hard search.

Any offer is subject to status and lender criteria, and the lender makes the decision. To see who lends in this market, browse the bridging lenders in our directory. We do not give tax or legal advice.