Bridging Loans: A Lifeline for Property Developers
You’ve just spotted the perfect development site. It’s priced right, the location is ideal, and you know it’ll sell fast. There’s one problem: your current project hasn’t settled yet, and you’re stuck waiting on funds. Miss this opportunity, and another developer will snap it up within days.
This is where bridging loans become essential for property developers.
These short-term financing solutions can help you secure new properties, complete existing projects, and maintain momentum without waiting for sales proceeds or traditional bank approvals, which can take months. This blog breaks down bridging loans, how they work, and their benefits.
Key Insights on How Bridging Loans Help Property Developers
- Access funds within days to secure time-sensitive development opportunities.
- Bridge the gap between project completion and sale settlement.
- Purchase land or properties at auction without delays.
- Fund renovations on unmortgageable properties.
- Maintain cash flow across multiple projects simultaneously when settlement timing doesn’t align.
What Are Bridging Loans?
Bridging loans are short-term financing solutions designed to “bridge” temporary funding gaps in property transactions. For property developers, they provide immediate capital (typically within 3 to 5 business days with Mango Credit) secured against existing property equity or the development site itself.
Bridging Loans: How Do They Work?
In Australia, bridging loans typically run for 6 to 24 months with interest-only repayments. Lenders usually offer loan-to-value ratios (LVR) between 60 to 75%, meaning you’ll need substantial equity in your existing properties to qualify. Unlike traditional bank loans that can take months to approve, bridging finance prioritises speed and flexibility over lengthy assessments.
Think of them as working capital for developers. You’re not taking on permanent debt, but accessing funds quickly to capitalise on opportunities, then repaying once your project completes and sells, or secures long-term financing.
Why Property Developers Use Bridging Loans
Property development moves fast. Sites don’t stay on the market long, auction deadlines won’t wait, and construction delays can derail your entire timeline. Bridging loans solve three critical challenges developers face daily.
Securing Time-Sensitive Opportunities
When you find a prime development site, you might only have days to secure it. Traditional development finance can take 4 to 8 weeks for approval. By then, the opportunity’s gone. Bridging finance with Mango Credit gets you a decision within 24 hours and often funds within 3 to 5 business days, so you can act when it matters.
Australian property developers frequently use bridging loans for auction purchases. Auctions require a 10% deposit on the day and settlement within 28 days. Standard bank loans simply can’t meet these timelines, making bridging finance the only viable option.
Managing Cash Flow Between Projects
You’ve completed a development, but settlement is 60 days away, and your next project needs a deposit now.
Rather than losing the opportunity or dipping into emergency reserves, a bridging loan provides immediate working capital. You’re essentially advancing your own funds before they’re officially available from your current project.
This cash flow management is critical for developers running multiple projects. You can maintain momentum, secure new sites, and avoid the stop-start cycle that erodes profitability.
Funding Unmortgageable Properties
Banks won’t finance properties without working kitchens and bathrooms. If you’re purchasing a dilapidated property (older, neglected and damaged) for renovation and resale, traditional mortgages aren’t an option. Bridging loans fill this gap, funding the purchase and renovation until the property becomes mortgageable, and to increase the sale value, at which point you refinance to standard lending after repayment.
How Do Bridging Loans Work for Property Developers?
Understanding how bridging loans work helps you determine when they’re the right tool for your development strategy.
The Application Process
You approach a private lender or broker with your development proposal, including the property details, your exit strategy (how you’ll repay), and evidence of equity in existing properties.
Lenders assess three factors: your equity position, the viability of your development, and your repayment plan.
Security and Loan Structure
Bridging loans are secured against property – either your existing portfolio or the site you’re purchasing. Lenders typically advance 60 to 75% LVR, though this varies based on location, property type, and your development experience.
Interest is often calculated monthly but capitalised (added to the loan balance and paid at the end), so you can preserve cash flow and aren’t required to make any payments until the term of the loan expires.
The Repayment Strategy
Your exit strategy is critical. Lenders need confidence that you’ll repay within the agreed term. Common exit strategies include:
- Selling the completed development
- Refinancing to standard development or investment finance
- Receiving settlement proceeds from an existing project
- Securing planning approval and refinancing at a higher property value
If your project sells faster than expected, you can repay early. Most lenders don’t charge early repayment penalties after a minimum term (typically 1 to 3 months), and you’ll only pay interest for the time you’ve used the funds. However, this depends on the lender. Borrowers should always review loan documents carefully and discuss penalties with the lender before signing.
The Upsides of Bridging Loans for Property Developers
Bridging loans offer distinct advantages that make them indispensable for active developers.
Speed and Certainty
When a development site comes up at the right price, speed matters.
You can’t afford to wait 8 weeks hoping a bank approves your application. Bridging finance providers understand property development cycles and can make quick decisions based on property value and exit strategy rather than exhaustive financial assessments.
Flexibility Across Project Types
Whether you’re buying land without planning permission, purchasing at auction, renovating an uninhabitable property, or simply bridging cash flow between settlements, these loans can be structured around your specific needs. There’s no rigid one-size-fits-all structure, and terms are negotiated based on your project timeline.
Access to More Opportunities
With bridging loans, you can operate across multiple projects simultaneously. You’re not constrained by settlement timing or bank processing speeds. This flexibility allows experienced developers to scale operations and capitalise on market opportunities as they arise.
Potential Risks & Important Considerations
Bridging loans aren’t suitable for every situation. Interest rates are often higher than traditional mortgages, due to the short-term nature and increased lender risk. You’ll also face establishment fees, legal costs, and potentially valuation fees.
The biggest risk is failing to sell or refinance within your loan term. If your development:
- Takes longer than expected to complete
- Doesn’t sell within your projected timeframe
- Encounters approval, planning or construction delays
- Faces a softening market
You may struggle to repay the loan on time. This could result in:
- Extension fees if you need to extend the loan term
- Default fees if you miss repayments
- Potential legal action by the lender to recover funds
- Impact on your ability to secure future financing
Always build buffer time into your exit strategy and have contingency plans in place. We recommend working with experienced property lawyers and financial advisers who understand development finance. They’ll help you structure deals properly and avoid common pitfalls that catch inexperienced developers off guard.
Ready to Move Your Development Forward?
Stuck between projects? Need to move fast on a development opportunity? Bridging loans can unlock stalled projects and secure new sites while you’re waiting on settlements or long-term financing.
At Mango Credit, we specialise in short-term finance solutions designed for property developers who can’t afford to wait. Our team understands development timelines and can provide fast decisions when opportunities arise. If you need immediate capital while existing projects settle, a second mortgage might also complement your financing strategy.
Get in touch to discuss how bridging finance can support your next development project.
Disclaimer: This article is for general information purposes only and does not constitute financial or investment advice. Bridging loans are a form of short-term business finance that should only be used when you have a clear, realistic exit strategy. Property development involves significant financial risk, and market conditions can change.
Every developer’s financial situation and project is unique. You should seek advice from licensed financial advisers, property lawyers, and accountants who specialise in property development before making decisions about development finance. Mango Credit provides short-term loans secured by real estate but does not provide financial planning, investment advice, or development feasibility assessments.