Bridging finance is a short-term loan that covers the gap between a payment you must make now and money you expect later, such as a property sale, bank refinance or contract payment. It's secured against property and repaid in a lump sum from that expected money. fundU provides business bridging finance of $20,000 to $1m across New Zealand, by first or second mortgage.
Bridging finance is a short-term loan that fills the gap between a payment you have to make now and money you know is coming later. For a business owner, that later money is usually a property sale, a refinance with a bank, or a large contract payment. The bridging loan lets you act on your timeline instead of waiting for everyone else's.
Kiwi business owners use bridging finance to buy new premises before selling the old ones, to settle on a property or business while a bank finishes its process, or to keep a project moving while a payment works its way through. This guide explains how business bridging finance works in New Zealand, the difference between open and closed bridging, how lenders calculate peak debt and, most importantly, how to plan an exit that holds up.
What is bridging finance?
Bridging finance is a temporary, property-secured loan that is repaid in one lump sum from a specific future event. It is not designed to be paid off gradually from trading income over many years. The whole loan is built around a clear start point, a clear finish point and the security in between.
For businesses, bridging finance usually covers one of these gaps:
- Buy before you sell. Settling on new premises, land or an investment property before your existing property has sold.
- Settle before the bank is ready. Completing a purchase on time while a longer-term bank loan is still being approved.
- Waiting on a payment. Funding a project, contract or tax bill while a large receivable, retention release or insurance payout is on its way.
- Buying a business. Covering a settlement date while proceeds from selling another asset come through.
Our business bridging finance page covers the loan itself. This guide focuses on how to make a bridge work.
How does a business bridging loan work?
A bridging loan works in three stages: the lender takes security over property, advances the funds you need now, and is repaid when the expected money arrives.
- Security is agreed. The loan is secured over one or more properties, often the one being sold, plus other property if needed.
- Funds are advanced. The money goes to the vendor, the seller of the business, IRD or wherever the purpose requires.
- The bridge runs. During the term, interest is either paid monthly or capitalised, depending on the approved terms.
- The exit event happens. Your property sells, the bank refinance completes or the contract payment lands.
- The loan is repaid. Funds from the exit clear the bridging loan, and the security is discharged from the title.
Because the loan is repaid from a single event, the lender's focus is on how certain that event is and whether the property covers the loan if the event is delayed.
What is the difference between open and closed bridging?
The difference is how certain the exit date is. That certainty shapes the term, the amount and how the lender assesses it.
| Closed bridging | Open bridging | |
|---|---|---|
| Exit date | Fixed and known | Expected but not fixed |
| Typical example | Your old premises have sold unconditionally and settle in six weeks | Your old premises are listed but not yet sold |
| Term | Matched to the settlement date plus a small buffer | Longer, allowing for marketing and settlement time |
| Evidence a lender wants | Unconditional sale agreement or written refinance approval | Valuation, agent appraisal, marketing plan and realistic price |
| Main risk | Settlement falls over or is delayed | Sale takes longer or achieves a lower price |
Closed bridging is simpler because the lender can see the money coming. Open bridging is still very workable, but needs a more conservative plan: a realistic price, a sensible term and enough equity to absorb a longer sale.
What is peak debt and why does it matter?
Peak debt is the highest total amount you'll owe at any point during the bridge. It normally occurs after you've settled on the new purchase and before the old property sells. It includes your existing mortgages, the bridging loan and any interest that is capitalised during the term.
End debt is what remains once the exit completes, for example the new bank loan on your new premises after the old ones have sold and the bridge is repaid.
Lenders look closely at peak debt because that's when they're most exposed. Your security needs to cover it comfortably, with room for selling costs and a longer-than-expected sale. Here's how the numbers can look for an owner buying bigger premises:
| Item | Amount |
|---|---|
| Current premises: market value | $900,000 |
| Current premises: existing bank loan | $150,000 |
| New premises: purchase price | $1,200,000 |
| New premises: bank loan approved against the new site | $720,000 |
| Shortfall to settle the new purchase | $480,000 |
| Owner's own cash contribution | $30,000 |
| Bridging loan (second mortgage over current premises) | $450,000 |
| Peak debt on current premises (bank loan + bridge, before interest) | $600,000 |
| Peak debt as a share of current premises' value | about 67% |
When the current premises sell for around $900,000, the proceeds repay the $150,000 bank loan and the $450,000 bridge plus any capitalised interest, and the balance, less selling costs, goes back to the owner. End debt is simply the $720,000 bank loan on the new premises.
If the sale price came in lower, say $820,000, the proceeds would still clear both loans, but with less left over. That's the kind of test worth running before you commit.
When is bridging finance a better choice than the alternatives?
Bridging finance is one of several ways to manage a timing gap. Each has its place.
| Option | How it works | Works best when |
|---|---|---|
| Sell first, then buy | Sell your property, then use the proceeds to buy | You can live without the property for a while, and the right replacement will still be available |
| Conditional offer on the new property | Make your purchase subject to selling your existing one | The vendor will accept the condition, which is rare in a competitive market |
| Bank bridging | Your bank provides a bridge alongside your new loan | You meet the bank's criteria and its timeline suits the deal |
| Private bridging finance | A private lender provides a short-term property-secured bridge | Speed matters, the bank has declined or can't move fast enough, or your circumstances are non-standard |
| Longer settlement date | Negotiate a delayed settlement with the vendor | The vendor is flexible and you have time to sell first |
Private bridging finance tends to win when the timeline is tight, the business's financial records don't fit a bank's policy, or there's a credit or IRD issue a bank won't look past. It's also useful as a stop-gap while a bank finishes its process on the long-term loan.
Negotiate the settlement date on your purchase with the bridge in mind. Even an extra couple of weeks can reduce pressure on the sale of your existing property and the length of the bridge.
How do you plan a safe exit from a bridging loan?
The exit is the most important part of any bridge. A strong plan answers three questions: where the money is coming from, when it will arrive, and what happens if it's late.
- Price it realistically. Base your expected sale price on a registered valuation or recent comparable sales, not the listing price you'd like.
- Allow for time. Add marketing time, buyer finance conditions, due diligence and settlement to your timeline, then add a buffer.
- Include costs. Agent commission, legal fees and capitalised interest all come out of the sale proceeds.
- Have a plan B. If the property doesn't sell by a set date, what will you do? Reduce the price, rent it out, or refinance to longer-term lending?
- Keep your lender informed. If an exit is slipping, tell your lender early. Extensions are considered case by case and are never automatic.
Our full guide to the exit strategy for short-term business loans goes through these steps in more depth.
How much can you borrow with bridging finance?
The amount depends on the value of the property you're offering as security, what is already owed on it and the lender's maximum loan-to-value ratio. fundU lends $20,000 to $1m, by first mortgage or second mortgage, against residential, commercial and industrial property, and some land or lifestyle property case by case.
More than one property can be used as security, including property owned by your company, your family trust or a supporting party such as a family member. Our guide on how much you can borrow against your property shows how to work out usable equity with worked examples.
Who uses business bridging finance in New Zealand?
Timing gaps hit small firms hardest, and small firms are almost the whole economy here: fewer than 20 staff describes 97.2% of enterprises, according to MBIE. A big company can ride out a slow sale on its balance sheet. A 10-person business moving premises usually can't, and the Reserve Bank has flagged that smaller borrowers are more likely to meet tougher lending terms, which makes a flexible bridge more valuable.
Owners who commonly use bridging finance include:
- Manufacturers and engineering firms moving into larger premises (see our manufacturing and engineering page).
- Hospitality owners securing a second site before selling a property.
- Builders and developers who need to settle a purchase while waiting on sales elsewhere.
- Farmers and rural businesses buying neighbouring land ahead of selling another block.
- Professional services firms buying their own offices instead of leasing, often alongside commercial property loans.
Example scenario
A Canterbury joinery business had outgrown its workshop and found a larger industrial unit nearby. The vendor wanted an unconditional offer with settlement in eight weeks. The owners' current workshop was worth about $900,000 with a $150,000 bank loan, and their bank had agreed to lend $720,000 against the new unit, leaving a $480,000 shortfall.
The owners contributed $30,000 of their own and took a $450,000 bridging loan secured by a second mortgage over the current workshop. Interest was capitalised so there were no monthly repayments while they moved machinery. The workshop was listed after the move and sold four months later, with the proceeds repaying the bridge in full.
Key takeaways
- Bridging finance covers a temporary gap and is repaid in a lump sum from a sale, refinance or payment.
- Closed bridging has a fixed exit date; open bridging has an expected one and needs a bigger buffer.
- Lenders assess peak debt, the highest point of total borrowing, not just end debt.
- Test your plan against a lower sale price and a longer timeframe before you commit.
- Capitalised interest can protect cash flow during a move or expansion.
- A clear, evidenced exit is the single most important part of the application.
Bridge the gap with fundU
If you've found the right premises, property or business and the timing doesn't line up, fundU can help you move now. We're a direct lender, so our credit team makes the decisions and can move quickly, with funding in as little as 24 hours once approved in some cases. Read more about our business bridging finance, then see if you qualify. It takes a couple of minutes and doesn't affect your credit score. You can also call 09 875 4577.
Frequently asked questions
What is the difference between open and closed bridging finance?
Closed bridging has a fixed, known exit date, such as an unconditional sale settling on a set day or a confirmed refinance. Open bridging has an expected exit without a fixed date, such as a property that is listed but not yet sold. Lenders usually view closed bridging as simpler, while open bridging needs a realistic term with a buffer.
What is peak debt in a bridging loan?
Peak debt is the highest total amount you owe during the bridge, usually just after you've bought the new property and before the old one sells. It includes existing mortgages, the bridging loan and any interest that builds up. Lenders check that your property security comfortably covers peak debt, not just the debt you'll have after the sale.
Can I use bridging finance to buy new business premises before selling my current ones?
Yes, that's one of the most common uses. A bridging loan secured against your existing premises, home or other property can fund the deposit or balance on the new site. When the original property sells, the proceeds repay the bridging loan. The key is a realistic sale price and timeframe, with a buffer if the sale takes longer.
How long does bridging finance last?
Business bridging loans are short to medium term, usually matched to how long the exit is expected to take plus a buffer. A confirmed settlement may need only weeks, while a property that still has to be marketed and sold may need several months. Choosing a term that's too tight is one of the most common mistakes.
Do I have to make monthly repayments on a bridging loan?
Not always. Depending on the approved terms, a bridging loan can be interest-only or have capitalised interest, which means no scheduled monthly repayments during the term. The interest is added to the balance and repaid with the principal when the sale or refinance settles, which helps protect cash flow during a move or expansion.
A practical next step
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