Definition
What is Bridge Finance?
Short-term debt (3-24 months) used to fund a property purchase or development phase before long-term debt or sale proceeds are available.
Bridge finance is short-term lending — typically 3-24 months — that "bridges" the gap between an immediate funding need and a longer-term resolution. The borrower expects to repay the bridge from a defined source: sale of an asset, completion of a development, refinancing into long-term debt, or an investor capital raise.
Standard NZ bridge finance scenarios: - Property settlement — borrower wins an auction but cannot wait for long-term bank approval; bridge funds the purchase, repaid when bank loan finalises. - Renovation completion — borrower needs capital to finish a property renovation before refinancing or sale. - Development land purchase — borrower needs to acquire land quickly before securing development finance. - Receivership / distressed sale — buyer needs to move fast on a distressed acquisition; conventional bank lending too slow.
Risk-return profile: bridge finance typically prices at 10-18% per annum (gross), reflecting both the short tenor (lender's capital is tied up briefly) and the elevated execution risk (the "exit" event must happen for the loan to repay).
LVR: bridge loans typically operate at 55-75% LVR of "as-is" or "as-improved" property value, depending on whether the lender accepts the post-improvement value as security.
NZ wholesale providers: several wholesale credit funds operate in the bridge segment specifically — Pallas Capital, Hunter Diversified, PCG. The strategy suits investors seeking higher yields than core senior-secured property but with shorter loan tenors and higher portfolio turnover.
Risks specific to bridge: - Exit risk — if the planned exit (sale, refinance) is delayed, the loan extends beyond original term. Bridge lenders typically charge default-rate interest from term expiry. - Property-value risk — if the underlying property declines in value during the loan term, the LVR rises and recovery is impaired in default. - Concentration risk — bridge loans are typically larger per-loan than typical first-mortgage portfolio loans, so default of one loan affects fund returns more significantly.
Related Terms
Development Finance
Debt funding for the construction phase of a property development — typically structured as drawdown facilities released against construction milestones.
Private Credit
Non-bank lending to businesses and property developers, offering regular income and typically secured positions.
Senior Secured Debt
Loans ranking first in priority for repayment in a default scenario and secured by specific collateral, typically with the lowest yields in the credit stack.
Educational Content Disclaimer
This glossary provides general educational information only and does not constitute financial, legal, or tax advice. Definitions and explanations are simplified for educational purposes and may not cover all aspects or nuances of each term.
Before making any investment decision, you should seek independent advice from appropriately qualified professionals. Wholesale Investor does not recommend or endorse any particular investment, strategy, or fund manager.