The short answer
Bridging finance is a loan that covers a gap in timing: you need money now, and you know where the money to repay it will come from later. That later event, such as a property sale, a refinance or a large payment the business is owed, is called the exit. The loan is secured against property, and it is repaid in one go when the exit happens.
In New Zealand most bridging loans help people buy a new home before they have sold the old one. Businesses use bridging finance too: to settle premises before another property sells, to pay IRD while a refinance completes, or to act on an opportunity before a customer pays.
How bridging finance works
- A need with a date. A settlement, a tax bill, a business purchase or a supplier deal that cannot wait.
- Property security. The lender takes a registered mortgage over property, either as the only lender (a first mortgage) or behind an existing lender (a second mortgage, usually with the first lender's consent).
- A clear exit. The sale of a property, a refinance with a bank or another lender, or a payment the business is owed.
- Little or nothing to pay along the way. Many bridging loans are set up so you pay interest only, or have interest added to the loan, until the exit.
- Repayment from the exit. When the sale settles or the refinance goes through, the loan and the interest and costs that have built up are repaid, and the mortgage is discharged.
Because the lender is relying on the exit, it looks mostly at the property, the purpose and how firm the exit is, rather than only at income and trading history. That is why bridging finance can often be arranged faster than a standard bank loan.
Closed and open bridging
- Closed bridging has a fixed exit: for example, a property already sold on an unconditional agreement with a settlement date. It is the easiest kind to assess, because the date and the amount are known.
- Open bridging has an exit that is expected but not yet fixed: a property on the market that has not sold, or a refinance that has been applied for but not approved. Lenders want more equity and a clearer plan for this kind, because the timing is less certain.
Benefits of bridging finance for a business
- Speed. Decisions turn on the property and the exit, so funding can happen in days rather than weeks.
- You do not lose the opportunity. You can settle a purchase, buy stock at a discount or take over a business on the seller's timetable, not your lender's.
- You do not have to sell in a hurry. Time to sell a property properly can be worth more than the cost of the loan.
- Cash flow is protected. With little or nothing to pay during the bridging period, working capital stays in the business.
- Tax and supplier problems stop growing. Paying IRD or a key supplier now can stop penalties, interest and damaged relationships while the main funding comes through.
Common business uses
- Settling a commercial property purchase before another property sells.
- Settling premises on time while the bank's long-term loan is still being approved.
- Paying an IRD debt while a sale or refinance completes. See our IRD tax debt loans.
- Buying a business, or stock and equipment, ahead of a large customer payment.
- Repaying a lender that wants to exit, while a new long-term lender completes its approval.
Bridging finance and commercial property
Bridging finance can be secured against commercial premises, such as an office, shop, warehouse or industrial unit, or against residential property the business owners own. Lenders usually lend a smaller share of a commercial property's value, because it can take longer to sell.
When you are buying premises, the settlement date in the sale and purchase agreement is fixed, so check your GST position early: it changes how much you need to fund on the day. Our guide to commercial loans and commercial mortgages explains how GST zero-rating works when buying premises.
The risks, and how to manage them
Settled.govt.nz, the government's home-buying guide, warns that bridging means budgeting for two loans at once, and that a slow sale or a lower price can leave you with more debt than you planned. The same risks apply to a business:
- The exit takes longer. Interest and costs keep building for as long as the loan runs. Plan for a delay, not the earliest possible date.
- The exit brings in less. A lower sale price or a smaller refinance may not clear every loan. Leave room in the numbers.
- The property is at risk. If the loan cannot be repaid, the lender can enforce its mortgage, so be confident in the plan.
- Fewer consumer protections. Credit used mainly for a business purpose is generally not a consumer credit contract, so many consumer lending rules will not apply. Have a lawyer review the contract before you sign.
Bridging finance or something else?
- Your bank. If you have time and fit its criteria, a bank is usually the cheapest option. Banks are mainly set up for home-move bridging.
- A second mortgage. A way to borrow against equity without refinancing the first mortgage. Many business bridging loans are structured this way.
- An unsecured business loan. No property needed, but amounts are usually smaller and lenders lean on trading history. Our guide to secured and unsecured business loans compares the two.
- Waiting. If the opportunity will still be there and nothing is overdue, waiting costs nothing. Our cost of business loan delays page helps you weigh it up.
Before you apply
- Write down the amount, what it is for and the date you need it.
- Gather the property details: the address, who is on the title, an estimated value and what is owing on it.
- Show the exit: a sale and purchase agreement, a listing, a refinance application or an invoice.
- Work out what happens if the exit is three months late or brings in less.
- Compare offers on the total amount you will repay over a realistic timeline, not just the rate. Our guide to business loan interest rates sets out what to check.
Where HomeSec fits
HomeSec is a direct, privately funded New Zealand lender. We lend $20,000 to $1,000,000 for genuine business purposes on open-term facilities, secured by a first or second mortgage over suitable residential or commercial property almost anywhere in New Zealand. Open term means the loan does not have to be repaid by a fixed early date, and you can repay at any time.
We do not lend to buy a new home before you sell, or for personal spending. For a home move, talk to your bank or a mortgage adviser.
No valuations or cashflow records are needed to start an enquiry. Funding may be possible in as little as 24 hours once assessment, documents, security, legal work and settlement line up, and approved facilities may offer up to six months with no scheduled payments. Interest still accrues during that time, and approval is never guaranteed.
See how HomeSec bridging finance for business owners works, including how we look at the exit.
Common questions
What is the difference between a bridging loan and a mortgage?
Both are secured by a mortgage over property. A standard mortgage is repaid in regular instalments over many years. A bridging loan is repaid in one go from a specific event, such as a sale or a refinance, and usually has little or nothing to pay until then.
Do I need a confirmed sale to get bridging finance?
Not always. A confirmed sale makes the loan simpler to assess. Without one, lenders look for more equity and a realistic plan for how, and by when, the property will sell or the loan will be refinanced.
How much can I borrow?
It depends on the property's value, what is already owing on it, the purpose and how firm the exit is. HomeSec lends $20,000 to $1,000,000, subject to assessment.
Can I get bridging finance with an existing mortgage?
Yes. If your bank already has a first mortgage and is staying in place, a lender may be able to lend as a second mortgage, usually with your bank's consent.
How quickly can bridging finance be arranged?
With HomeSec, funding may be possible in as little as 24 hours, subject to approval, documents, security, legal work and settlement requirements. Having your exit evidence ready helps.