Bridging Loans in Australia

What Is a Bridging Loan?

A bridging loan is a short-term loan secured against property, designed to “bridge” the period between an outgoing and incoming transaction.

In private lending, bridging loans are typically:

• Secured by one or more properties

• Short-term in nature

• Structured around a clearly defined exit

• Used where traditional lenders cannot meet required timelines

Bridging loans may be structured as first or second mortgages depending on the existing security and loan position.

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When Are Bridging Loans Used?

Bridging loans are used when timing, not affordability, is the primary challenge.

Common scenarios include:

• Purchasing a property before an existing property is sold

• Securing a time-sensitive investment opportunity

• Funding a settlement where bank approval or drawdown is delayed

• Managing short-term liquidity while awaiting refinance

• Supporting business or investment transactions with tight deadlines

Bridging finance is intended as a temporary solution rather than long-term funding.

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How Private Lenders Assess Bridging Loan Risk

Private lenders assess bridging loans differently to standard term loans due to their short duration and reliance on exit certainty. Key considerations include:

Security Quality

Lenders assess the quality, location, and marketability of the secured property or properties. Liquidity and resale depth are critical factors.

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Loan-to-Value Ratio (LVR)

Bridging loans are assessed on conservative LVR limits, particularly where multiple securities are involved or where the loan includes capitalised interest. Where bridging is structured behind an existing loan, it may involve a second mortgage loan, which requires additional caution due to subordinate ranking.

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Exit Strategy

The exit strategy is the central focus of any bridging loan.

Acceptable exits typically include:

• Sale of an existing property

• Refinance into a longer-term facility

• Release of funds from a confirmed transaction

Exit strategies must be realistic, documented, and time-bound. For a broader explanation of how private lenders evaluate exit strategies, see Private Lending in Australia.

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LVR and Security Considerations for Bridging Loans

Bridging loans are highly sensitive to valuation and timing risk. Private lenders typically require:

• Conservative, independent valuations

• Clear equity buffers across all secured properties

• Allowance for peak debt, including capitalised interest and fees

A first mortgage private loan may allow higher leverage when structured as a standalone facility. Bridging loans require stricter controls due to their reliance on exit timing rather than ongoing servicing.

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Exit Strategy Requirements

Every bridging loan must have a clearly defined and achievable exit. Private lenders will assess:

• The certainty of the sale or refinance

• The expected timeframe for completion

• The borrower’s ability to manage delays

Bridging loans are commonly declined where:

• The exit relies on speculative future events

• Sale pricing assumptions are unsupported

• Timing risks are not adequately addressed

Exit strategies must be supported by evidence rather than intent.

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Common Reasons Bridging Loan Applications Are Declined

Bridging loan applications may be declined for several reasons, including:

• Insufficient equity once peak debt is considered

• Over-reliance on optimistic sale values

• Lack of a confirmed or realistic exit

• Poor property market liquidity

• Senior lender restrictions affecting security

These issues are structural and can often be resolved through improved planning and structuring.

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How Bridging Loans Are Structured

Bridging loans are typically structured as:

• Short-term facilities, often between 3 and 12 months

• Interest-only or capitalised interest arrangements

• First or second mortgage security

• Fixed repayment aligned with the exit strategy

Pricing reflects transaction complexity, speed of funding, security position, and loan duration. Bridging loans are not designed to replace long-term finance.

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How Innovate Funding Structures Bridging Loans

Innovate Funding structures bridging loans by focusing on exit certainty and risk management.

This includes:

• Assessing the quality and liquidity of security

• Stress-testing sale or refinance assumptions

• Structuring facilities to accommodate timing risk

• Matching transactions with appropriate private lenders

Each bridging loan is structured to support a clear transition to the next stage of funding.

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Bridging Loans – Frequently Asked Questions

Are bridging loans only used for property purchases?
No. Bridging loans can be used for a range of business and investment purposes where short-term funding is required.

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How quickly can bridging loans settle?
In many cases, bridging loans can settle within days once valuation and documentation are complete.

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Do bridging loans require a sale contract in place?
Not always, but evidence supporting the proposed exit is usually required.

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Can bridging loans be refinanced later?
Yes. Bridging loans are commonly refinanced into longer-term facilities once the exit event occurs.

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Are bridging loans expensive?
They are typically more expensive than traditional loans due to their short-term nature and reliance on exit certainty.

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Understanding Your Options

Bridging loans play an important role in Australia’s private lending market by enabling borrowers to act decisively when timing is critical. When structured correctly, bridging finance allows transactions to proceed without unnecessary delays while maintaining a clear pathway to exit. For a broader overview of how bridging loans fit within private finance, visit Private Lending in Australia.