Bridging Loan vs Construction Loan
Two essential finance products for property – understanding when to use each.
Both bridging loans and construction loans are short-term finance products used in property transactions, but they serve very different purposes. Understanding the distinction helps you choose the right tool for your project.
A bridging loan provides short-term finance to "bridge" a gap – typically between buying a new property and selling an existing one.
Key Characteristics:
- Term: 1-12 months (typically)
- Purpose: Bridge between transactions
- Drawdown: Lump sum at settlement
- Exit: Sale of property or refinance
- Interest: Often capitalised (no monthly payments)
Common Uses:
- • Buying before selling (residential upgrade)
- • Auction purchases requiring fast settlement
- • Land acquisition while awaiting DA
- • Business acquisition funding
A construction loan funds the building or renovation of property, with progressive drawdowns as construction milestones are completed.
Key Characteristics:
- Term: 12-24 months (construction period)
- Purpose: Fund construction costs
- Drawdown: Progressive (stage payments)
- Exit: Sale, refinance, or convert to term loan
- Interest: Charged on drawn amount only
Common Uses:
- • New home construction
- • Multi-unit residential development
- • Commercial building projects
- • Major renovations/extensions
Detailed Comparison
Funding Structure
Bridging Loan
Single drawdown at loan settlement. Full amount available immediately.
Construction Loan
Progressive drawdowns tied to construction stages (slab, frame, lock-up, fixing, completion).
Interest Calculation
Bridging Loan
Interest calculated on full loan amount from day one. Often capitalised.
Construction Loan
Interest only on funds drawn. Reduces interest cost during build phase.
Valuation Requirements
Bridging Loan
Based on current market value of security property/properties.
Construction Loan
Based on "as-if-complete" valuation plus quantity surveyor assessment.
Documentation
Bridging Loan
Standard property purchase documents, exit strategy evidence.
Construction Loan
Building contract, plans, council approvals, builder insurance, QS report.
Timeframe
Bridging Loan
Can settle in 3-7 days with experienced private lenders.
Construction Loan
Typically 2-4 weeks to establish due to additional documentation.
When You Need Both
Some projects require both types of finance in sequence.
Example: Development Site Acquisition + Build
Bridging Loan for Land
Use a bridging loan to acquire the development site quickly, before DA is approved. Banks won't lend without DA.
Obtain DA Approval
Work through the approval process while holding the site under the bridging facility.
Construction Finance
Once DA is approved, refinance into a construction loan that pays out the bridging facility and funds the build.
Quick Decision Guide
- You're buying a property before selling another
- You need to settle quickly (auction, opportunity)
- You're acquiring land before approvals
- You need short-term funding while arranging permanent finance
- No construction is involved
- You're building a new property
- You're doing major renovations
- You have approved plans and a building contract
- You need staged funding as construction progresses
- You're developing multiple dwellings
Need Help Choosing the Right Finance?
Our team can assess your project and recommend the optimal financing structure – whether that's bridging, construction, or a combination.