There are moments in business and property investment where timing is everything. You have found the right site, the numbers work, and the opportunity will not wait — but your bank cannot move fast enough, or your application does not fit their current lending appetite. This is exactly the scenario bridging finance was designed for.
What Is Bridging Finance?
Bridging finance is a short-term loan that "bridges" the gap between an immediate funding need and a longer-term financial arrangement. It is temporary by design, typically lasting between six and twelve months, and is repaid once the borrower's exit strategy is executed — whether that is a bank refinance, property sale, or settlement of another transaction.
In the Australian commercial finance market, bridging loans are commonly used for property purchases, development site acquisitions, business restructuring, and situations where funds are needed before existing assets have been sold or refinanced.
Why Do Banks Say No?
It is a misconception that bank knockbacks only happen to risky borrowers. In reality, there are many legitimate reasons a bank might decline or delay an application that has nothing to do with the quality of the deal:
- Timing: Banks have lengthy approval processes. A deal that needs to settle in two weeks simply cannot wait for a six-week credit assessment.
- Policy changes: Banks regularly adjust their lending criteria based on market conditions, regulatory pressure, or internal risk appetite. A deal that would have been approved six months ago might not fit today's guidelines.
- Non-standard income: Self-employed borrowers, company structures, or trusts with complex financials often fall outside a bank's automated assessment models.
- Property type: Banks can be restrictive about certain property types, locations, or zoning categories that private lenders are comfortable with.
- Existing exposure: If a borrower already has significant bank debt, their existing lender may be reluctant to increase exposure, even if the new deal is sound.
None of these situations necessarily reflect a bad deal. They simply mean the deal does not fit the bank's current box — and that is where bridging finance steps in.
How Bridging Finance Works
The structure of a bridging loan is relatively simple compared to traditional bank products. Here is what borrowers can typically expect:
Loan Structure
Bridging loans are almost always interest-only for the duration of the term. This means the borrower only pays interest each month (or the interest is capitalised), with the full principal amount repaid at maturity. This structure keeps monthly outgoings low during the bridge period, which is particularly important when the borrower is between transactions or waiting for a property to sell.
Security
Bridging loans are secured against real property — typically a first mortgage over the asset being purchased or an existing property the borrower owns. Lenders assess the loan-to-value ratio carefully to ensure adequate security coverage. First mortgage lending rates in the private market generally start from around 10% per annum, depending on the specifics of the deal.
Exit Strategy
This is arguably the most critical component of any bridging loan. Every reputable private lender will require a clearly articulated exit strategy before approving a bridge. Common exit strategies include:
- Refinancing to a major bank or non-bank lender once the borrower's circumstances meet standard criteria.
- Selling the secured property or another asset within the loan term.
- Completing a development project and selling the finished product.
- Receiving settlement proceeds from a pending transaction.
Without a viable exit, the loan should not proceed — and a good lender will tell you that upfront. At Esteb Capital, an exit strategy is a non-negotiable requirement for every deal we fund, because it protects the borrower as much as it protects us.
Common Uses for Bridging Finance in Australia
Bridging finance is versatile. Here are some of the most common scenarios where Australian businesses and investors use it:
Auction Purchases
Buying at auction requires unconditional finance. Bridging loans allow investors to bid with confidence, knowing they can settle quickly and refinance to a bank at their own pace afterwards.
Buying Before Selling
When a business or investor needs to purchase a new property before their existing one has sold, a bridging loan covers the gap. Once the existing property sells, the bridge is repaid.
Development Site Acquisition
Property developers often need to move quickly to secure sites in competitive markets. A bridging loan can fund the acquisition while the developer arranges longer-term development finance.
Business Restructuring
Companies going through ownership changes, debt consolidation, or structural reorganisation may need short-term capital that traditional lenders are not equipped to provide on a fast turnaround.
Costs to Consider
Bridging finance is more expensive than a standard bank loan, and borrowers should budget accordingly. Key costs include:
- Interest rate: Rates vary depending on the lender, security quality, and loan-to-value ratio, but typically start from 10% per annum for first mortgage positions.
- Establishment fees: Most private lenders charge an upfront fee to arrange the loan.
- Legal costs: All legal costs — including the lender's legal fees — are generally borne by the borrower. This is standard practice across the private lending market.
- Valuation fees: An independent valuation of the security property is usually required.
While these costs are higher than bank finance, they need to be weighed against the cost of missing the opportunity entirely. In many cases, the profit from the deal far outweighs the additional interest expense of a short-term bridge.
Finding the Right Bridging Lender
Not all bridging lenders are the same. When choosing a private lender for bridging finance, look for transparency in pricing, a clear understanding of your industry, and the ability to move quickly. The lender should be willing to assess your deal on its merits and give you a straight answer early in the process.
Esteb Capital provides bridging finance for business and commercial purposes across Australia. Whether you are a broker presenting a deal or a borrower looking for a direct conversation, we assess every transaction individually and aim to provide clarity within hours, not weeks. If you have a deal that needs to move, get in touch.