How Does a Construction Bridge Loan Work?

how does a construction bridging loan work
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    Time is money for builders and developers, so having your project stall due to insufficient funds could prove costly. Being able to continue with your plans and schedules without any delays is paramount, and a construction bridge loan can allow you to do just that.

    How does a construction bridge loan work?

    A construction bridge loan works by providing funds for builders, developers or property owners alike, who are at the beginning or part-way through a construction project and require additional money in order to start or complete the work.

    Property developers tend to choose construction bridge loans in order to keep the momentum going on custom builds or commercial investment projects.

    This type of finance is usually short term and covers the cost of construction only. This is why the loan amount is based on the costs needed to build the development and not on the value of the property at the end of the project.

    At Bridging Options, we offer bespoke construction bridge loan packages with varying fees and interest rates depending on the amount borrowed and terms agreed. To find out more about the advantages of construction bridge loans over other types of finance and how they could benefit you, take a look at this informative guide.

    Reason to use a construction bridge loan?

    One of the main advantages of taking any type of bridging loan, including for construction purposes, is the speed in which the funds can be accessed.

    Quite often the reason why construction bridge financing can be obtained so quickly is that in most situations requests for this type of bridge loan typically come towards the end of a building project. This means that most of the construction risk has already been removed from the lending equation.

    Also, the amounts required for a construction bridge loan tend to be considerably smaller than traditional bridge loans, which need to cover a large proportion of the property’s perceived value. For a construction bridge loan, however, the increased value of the newly built property provides ample security to the lender.

    Construction bridge loan payments often come in instalments and are paid out as the project completes and move to new stages of development. Alternatively, a construction bridge loan may be paid in one lump sum to cover a specific part of the build process.

    The most common scenarios where a construction bridge loan may be required include:

    • A blown budget. When you start a project from scratch, it is often difficult to determine the exact costs or plan for unforeseen events. Therefore, at certain stages, it is often inevitable that construction costs will overrun or that you will require more funding than originally forecasted. This is where a construction bridge loan can help, as it can provide you with the extra funding you need to complete the project.
    • Change in scope. Quite often during the construction process, the developer might make a conscious decision to make changes to certain aspects of the build. This could include a larger kitchen, adding extra features and mod cons or building to a higher specification. This often results in more costs being incurred than initially planned. A construction bridge loan is often granted as these additional amendments will ultimately increase the overall cost of the property once finished.
    • To cover a financing shortfall. This scenario is likely to occur when the primary finance lender decides to delay drawdown payments or cuts back on the agreed loan amount. This could be because the project is not progressing quickly enough or due to ongoing issues with the build. Due to the shortfall in finances, incremental capital such as a construction bridge loan, is required for the build to continue.
    • For funding multiple projects. A good developer will have dreams of expanding their business and constantly be on the lookout for their next building venture. But quite often this means bidding on properties at the last minute and without having readily available funds to get the project off the ground. A construction bridge loan enables developers and property owners alike to start the next project without having to wait for another one to end.
    • To pay staff. Quite often the money that would otherwise be reserved for paying staff gets sucked up in other unforeseen project costs. So that you are not left short come pay day, a construction bridge loan can help you meet your payroll deadlines and ensure that your employees jobs are secure.

    Advantages of construction bridge loans over other finance

    In an ideal world, everything would run like clockwork. Unfortunately, this isn’t always the case, and you can’t predict the unpredictable such as equipment breaking, a need for additional inventory, or other sudden and unexpected business costs.

    Utilising a construction bridge loan, however, will bring your business security whilst providing you with additional financing for emergency expenses. But why choose a construction bridge loan over other types of finance plans?

    Construction bridge loans offer many significant advantages over conventional or bank-financing arrangements. These include:

    1. The speed in which funds can be accessed. If you need to access additional finance quickly in order to continue with a project, the delay of filling out realms of paperwork and waiting for checks to be made, can prove costly. After all you don’t want your builders putting down tools or sitting around twiddling their thumbs. Opportunity waits for no one, and with a construction bridge loan you could be in possession of additional funding within a matter of days.
    2. Flexible term structures. One size does not fit all, and the great thing about a construction bridge loan is that they are tailor-made to suit the borrower in terms of repayment and collateral release. As with all lending, interest is charged on the amount of money borrowed. And, since the loan isn’t paid out in full, often until the new construction is complete, you won’t have to start paying until then either. During construction, you will only be expected to pay lower, interest only payments on the loan itself, giving you more time to save.
    3. Bespoke financial plans. At Bridging Options our construction bridge loans are offered on a case by case basis and are usually customised to suit the needs of the borrower. This not only allows us to find the right deal for you but enables you to get the best interest rates and fees available.
    4. Short term solutions. A lot of finance packages tend to tie you in to long term commitments, but any good property developer will aim to buy and sell (or flip as it is otherwise known) as quickly as possible. Therefore, you don’t want to be paying off a loan long after the property has sold, as you want to be debt free in order to move on to the next. Construction bridge loans give you this flexibility as they tend to be offered on a short term basis until the construction process completes.

    How to secure a construction bridge loan

    Asking for finance for a planned construction project can be an intimating task, as you are asking for someone to fund a dream that, as of yet, does not exist. This is why lenders such as Bridging Options, ask to see hard evidence of past experience and a detailed plan of timings and costings before agreeing to a construction bridge loan.

    This does not mean that if you are a first time developer that you will not be eligible, but you will need to display a thorough understanding of the costs involved in the project. Quite often inexperienced developers are blindsided with optimism and this can lead them to underestimate the overall outlays and timings of developments. Quite often the money will be paid directly to the builder and not to the borrower themselves.

    Just like other types of bridging loans, funds are usually provided against an agreed build schedule and thoroughly monitored throughout to ensure for a successful completion. The added scrutiny may seem daunting at first, but during the build process it can actually help to ensure that your project stays on budget and track.

    Why choose Bridging Options?

    At Bridging Options, we are here to assist you in achieving your dreams, getting your plans off the ground and continuing to keep your project propelling forwards. This is why we provide honest advice and give an early indication of the interest rates and terms you can expect to be offered with a construction bridge loan.

    To find out just how much you are eligible to borrow, take a look at our easy to use calculator and receive an instant, no obligation construction bridge quote via your email or mobile.

    If you have big aspirations but limited funding, then why not consider a construction bridge loan with us? For a free, no obligation telephone consultation, call us today or complete our online enquiry form.

    mark piper bridging loan consultant
    Mark Piper

    I am the Senior Consultant at Bridging Options. I have extensive experience in leading successful sales teams at major UK insurers and founding a start-up mortgage brokerage, I bring expertise in residential and commercial property investments. Through strategic collaboration with industry leaders, I am committed to delivering exceptional service and empowering clients to achieve their property investment goals.

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    Commercial bridging loans offer a short-term funding solution for businesses, landlords, property developers and land owners in the UK.


    Residential bridging loans are a popular and useful form of property finance, but at Bridging Options, we appreciate that comparing different rates and terms can be complex and confusing.

    Development Loans

    Development finance offers short-term funding to those who need help with the purchasing and/or building costs of a construction project.

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