Bridging Finance

During a bridge you owe on both assets at once. That combined figure is peak debt, and it is what the lender assesses, not the balance you expect to be left with afterwards.

1. 01Start with the balance on the existing loan.
2. 02Add the purchase price of the new asset, less any cash deposit you are contributing.
3. 03Add duty, legal costs, valuation, establishment fees and the interest expected to accrue during the bridge.
4. 04That total is peak debt, and it is tested against the combined value of both properties.
5. 05Then subtract the expected net sale proceeds of the outgoing asset, after agent commission, legals and any GST, to reach the end debt.
6. 06The end debt has to be serviceable on ordinary terms, because that is the loan you are left holding.

Bridging facilities are almost always interest only, because there is no sense amortising a loan that will be repaid in months. What differs is whether the interest is paid or added.

• Capitalised interest is added to the balance each month, so nothing leaves your bank account during the bridge. It preserves cash flow and grows the payout figure.
• Prepaid interest is deducted from the advance at settlement for the whole term. You receive less than the face amount, and the cost is known up front.
• Serviced interest is paid monthly from your own cash flow, which suits businesses with income and keeps the balance flat.
• Whichever applies, the amount has to be inside the lending limit. A facility with capitalised interest must have room for that interest, or you will hit the limit before the exit.

The comparison tool on this page is indicative only. It is not an offer of credit, not a quote and not a guarantee of approval, but it does show plainly how differently an interest-only period behaves from an amortising loan.

1. 01

   Evidence of the exit

   A contract of sale, a formal approval from an incoming lender, a registration timetable, or a signed agreement for the receivable. The stronger the evidence, the cheaper the bridge.

2. 02

   Valuations of both assets

   Incoming and outgoing. On the outgoing asset, lenders often work from a figure reflecting a limited marketing period rather than an unhurried sale.

3. 03

   A realistic term with a buffer

   Add time. Sales fall over, settlements extend, titles register late. A term that is two months longer than needed costs far less than a default or an extension.

4. 04

   The end debt tested properly

   The lender assesses whether you can service what is left after the sale, on normal terms. If the end debt does not service, the bridge should not be written.

5. 05

   A plan B

   If the sale does not happen, what then. A lower reserve price, a longer facility, a refinance. Lenders ask, and so do we.

The last row is worth pausing on. Where a deadline sits weeks before a certain receipt of funds, a bridge is often much cheaper than the consequences of missing the deadline. Where there is no certain receipt of funds, it is not a bridge at all, and it should be treated as ordinary borrowing and assessed as such.

• Diarise the expiry the day you settle, and set a review point at the halfway mark.
• If the sale is slow, act at the halfway mark rather than in the final fortnight. Options exist earlier and disappear later.
• Start the refinance application well before expiry, because a bank process takes weeks and needs current documents.
• Keep the lender informed. A lender told about a delay in advance is a different lender to one told after the expiry date.
• Do not extend repeatedly. Two extensions on a bridge usually means the exit assumption was wrong and the position needs restructuring instead.

We stay long after the paperwork is signed. On a bridge, that is the whole job.