Bridging vs Development Finance: what’s the difference (and which one do you need)?

For property developers, using the right type of finance is just as important as finding the right project. It can be the difference between completing quickly or losing an opportunity, between moving onto your next project or getting stuck mid-build.

One of the most common areas of confusion I see – even among experienced developers – is knowing when to use bridging finance, and when a project requires development finance.

Bridging and development finance are close relatives of each other. At first glance they almost look like twins. They are both forms of specialist property finance, and both are powerful tools in the right hands. But while bridging and development finance are similar, they’re each designed for different scenarios. Understanding their nuances and the distinctions between them, can save you time, your sanity, and most importantly, your money.

Let’s break it down.

1. Bridging Finance – fast, flexible, focused on today’s valuation

Bridging finance is a short-term funding product built for speed. It’s what investors use when timing is critical: buying at auction, funding a refurbishment, or completing a purchase before a sale goes through.

• Term: usually 3-12 months (can go up to 24)

• Loan-to-Value (LTV): typically up to 75% for residential, 70% for commercial

• Advance: based on the current market value of the property (or purchase price), usually drawn in a single tranche

• Planning: if your project requires planning consent, bridging lenders will provide funds for the purchase, so long as there remains a viable exit even if planning is not granted (e.g. through a sale)

Because it’s short-term and secured by a first charge (usually), bridging lenders are far more flexible about a property’s condition. You can fund light or heavy refurbs, conversions, or properties with no heating or working kitchens – properties that conventional mortgage lenders simply won’t touch.

The key is to have a clear exit strategy: how will the loan will be repaid?. Usually this is through a refinance onto a term mortgage, or via a property sale once the refurb works are complete.

It’s important to demonstrate upfront that the exit is viable. A sale is usually ‘easier’ for lenders, since it will ensure the borrower receives 100% of the GDV (i.e. the sale price). On the flipside, there’s no guarantee how long a property will take to sell, or at what price – especially in a falling market. 

A remortgage, on the other hand, will likely only achieve 75% of the GDV. But at least we have more certainty and control over the timing. At Clear Idea Finance, I always recommend managing the remortgage process so that the surveyor can go in and value the property just as the work is completed. After all, we want to get you off the bridging loan as quickly as possible, and onto cheaper long-term finance. 

This is one of the nuances of bridging (especially with refurb or conversion projects), and why it’s so important to use a specialist broker who has experience of managing both the original bridging facility, as well as the term mortgage at the end of it. 

In short: bridging finance is about speed and opportunity. It lets you act quickly, swoop in, do your thing, add value, and move on to the next one. Build and repeat.

2. Development Finance – structured, staged drawdowns, GDV-driven

Like lions and tigers, development finance is related to bridging, but an entirely different beast. Of all the types of specialist property finance, this is the most complicated, the riskiest for lenders, and the most difficult to get.

Development finance is designed for ground-up builds, major conversions, or large-scale refurbishments where significant works are required before the property becomes habitable or saleable.

Rather than lending against the property’s current value (as is the case with bridging), development lenders focus on future value once completed – in other words, the Gross Development Value (GDV).

• Loan size: up to 65% LTGDV, plus up to 100% of build costs

• Drawdowns: funds are released in stages as work progresses, usually signed off by a monitoring surveyor (MS) or an asset manager (basically ‘MS-lite’)

• Term: usually 12-24 months

• Planning: development leaders will only lend if your project has full planning consent. If it doesn’t, then you need bridging finance – see above…

Because the sums involved are larger and the risks higher, lenders pay close attention to the developer’s experience, the architect and project management team, and contractor credentials. Inexperienced and even first-time developers aren’t excluded, but they’ll need strong support around them.

Think of development finance as partnership funding – the lender isn’t just backing the asset; execution risk is the highest with development projects, so they’re backing your ability to deliver.

3. The Overlap – where one ends and the other begins

Many property projects sit somewhere in between bridging and development finance. A heavy conversion or multi-unit HMO refurbishment, for instance, may be too complex for a standard bridging loan but not quite a full development scheme.

These are the blurred lines (with apologies to Pharrell Williams and Robin Thicke). It’s in this space that an experienced specialist property finance broker can make all the difference. 

A broker who understands both sides of the market will know which lenders are flexible enough to fund hybrid projects, and how to structure the deal so it fits within a lender’s appetite and criteria.

For example:

• A commercial-to-residential conversion might start with a bridging loan for the property acquisition and planning, then switch to development finance once permissions and works are approved.

• Using the right lender from the start might mean being able to structure the facility to cover both phases – saving a huge amount of cost and time. And stress – if you’ve ever been through a full development finance application while the clock is running down on an existing bridging loan, you’ll know exactly what I’m talking about…

The key is understanding how lenders assess risk, and presenting the deal in a way that gives them confidence.

4. Getting it right from the start

In my experience, the biggest mistake investors make is approaching lenders too late (not enough time), too early (plans not fully mapped out), or with incomplete information. 

Actually, I believe it’s never ‘too early’ so start looking at finance. When you plan your finance early – before you’ve even agreed a purchase price – it gives you time to explore your options and kick around some ideas and scenarios with your broker.

You’ll have a good idea what kind of finance is available, and what it’s likely to cost. Then you can negotiate and plan with confidence.

A good specialist property finance broker will:

• Stress-test your numbers and make sure they stack up, even under conservative assumptions

• Ensure your exit plan makes sense and will be acceptable to lenders

• Identify lenders aligned with your project and experience

• Package your proposal professionally for lenders, ensuring that ‘obvious’ underwriter questions have been addressed

• Secure the ‘best’ funding package that support your long-term growth

Because in today’s market, lenders aren’t funding potential – they’re funding preparation.

The final word

Property developers often tell me that lenders often seem to be looking for reasons not to lend, rather than trying to get loans funded.

Believe me – as a broker, I do have a lot of sympathy for this point of view… 

But having spent more than 15 years working for two of the world’s largest banks, I can assure you that they really do want to lend – their own profit and their individual bonuses depend on it!

That said, lenders are fundamentally risk-averse and want to protect their own capital and funding.

From my position now as a broker, my role is to work with you to make it as difficult for the lender to say ‘no’. 

So whether you’re acquiring, converting or developing, having a solid understanding of your finance options is essential to protecting your own capital, unlocking growth and maximising your profit.

For both bridging and development finance, the most important question the lender will ask is “How will we get repaid, and are we confident that we will?”

Bridging finance gives you speed and flexibility. Development finance gives you scale and structure. Used correctly – and often together – they form the backbone of a professional property development strategy.

If you’d like expert guidance on which option suits your next project, or you want to discuss how to structure a deal from the outset, I’d be happy to help.

👉 Contact Richard Grainger, Specialist Property Finance Broker at Clear Idea Finance, for tailored advice on bridging, development, and structured property funding.

📧 richard@clearideafinance.com 📞 01473 598132 | 07522 724388