Bridging Finance vs Development Finance
Understanding the structural differences and knowing which product fits your project.
At a Glance
| Bridging Finance | Development Finance | |
|---|---|---|
| Purpose | Short-term capital for acquisitions, refurbishment or transitional needs | Funding construction or major conversion projects |
| Loan Term | Typically 1–24 months | Typically 12–36 months |
| Drawdown | Usually a single advance at outset | Drawn in stages as construction progresses |
| Basis of Lending | Loan-to-Value (LTV) of current or 90-day value | Loan-to-Cost (LTC) and Gross Development Value (GDV) |
| Monitoring | Generally not required | Monitoring surveyor required to verify progress |
| Typical LTV/LTC | Up to ~75% LTV | Up to ~70% LTC / ~65% GDV |
| Planning Required | Not always | Usually required before first drawdown |
| Exit Strategy | Sale or refinance | Sale of completed units or refinance |
When to Use Bridging Finance
Bridging finance is best suited to projects where the primary need is speed or short-term capital — rather than ongoing construction funding.
When to Use Development Finance
Development finance is the appropriate product where the project involves significant construction or conversion — where funding needs to be released in stages as the project progresses.
Key Structural Differences
Drawdown Structure
Bridging finance is typically advanced as a single sum at the start of the loan. Development finance is drawn in tranches as construction milestones are reached — each drawdown is triggered by a monitoring surveyor's report confirming progress.
How the Loan Is Sized
Bridging loans are sized as a percentage of current property value (LTV). Development loans are typically sized as a percentage of total project cost (LTC) and capped at a percentage of the completed Gross Development Value (GDV).
Monitoring Requirements
Bridging finance generally does not require ongoing monitoring once the loan is drawn. Development finance lenders appoint an independent monitoring surveyor who reviews and approves each drawdown request, adding a layer of cost and process to the transaction.
Planning and Permissions
Bridging finance can sometimes be arranged before planning permission is in place — for example, to fund an acquisition while a planning application is pending. Development finance lenders typically require detailed planning consent before the first construction drawdown.
Cost Profile
Development finance tends to carry arrangement fees and monitoring costs in addition to interest. Bridging finance has a simpler cost structure, though the monthly rate can be comparable or higher depending on the risk profile of the transaction.
Not Sure Which Product Is Right for You?
Choosing between bridging finance and development finance is not always straightforward. The right answer depends on the nature of the project, the scope of works, the required drawdown structure and the planned exit.
At 3 Trees Finance, we can help you understand the options and connect you with specialists who have experience across both products and across a wide range of project types.
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