Investors often describe the choice as bridging being quicker and more expensive, and development finance being cheaper and slower. That is roughly true and almost entirely beside the point. The two products are shaped for different jobs, and picking the wrong one usually shows up as a timing problem rather than an interest rate problem, which is why we look at it inside funding preparation rather than treating it as a question for the broker alone.
The structures described below are the common ones. Terms, costs and criteria differ between lenders and between deals, and some funders combine elements of both, so the specifics have to come from the facility actually on offer.
What each one is built for
Bridging is short-term money against an asset. It is designed to let you acquire or hold something quickly, usually where speed matters or where the asset cannot yet support conventional lending, and to be repaid from a defined event: a sale, a refinance or the arrival of longer-term funding.
Development finance is staged money against a build. It is sized against the scheme rather than only the asset, released against work completed and verified, and repaid from the sale or refinance of the finished development. It carries the monitoring apparatus described in what a development lender checks before releasing funds, because the lender is funding something that does not exist yet.
Put plainly: bridging funds a purchase, development finance funds a construction programme. A scheme that needs both will often use them in sequence rather than choosing between them.
How the money behaves
The mechanics differ in a way that matters to cash flow. Bridging is usually drawn as a lump at the start, so interest runs on the whole balance for the whole term. Development finance is drawn in stages, so interest accrues only on what has been released, which is a meaningful difference over a build period.
Interest can be serviced monthly, retained from the advance, or rolled up and paid at the end, and each option changes the cash requirement and the amount actually available to spend. Where interest is retained or rolled, the headline facility is larger than the money you can use, and appraisals that miss this understate the equity required.
Arrangement, exit and monitoring charges sit on top, and they are structured differently by different lenders. Those belong in the appraisal as cash items, a point made more generally in the five costs first-time developers leave out.
The exit is the real question
Short-term money has to be repaid by a date, from a defined source. So the first question is not what it costs but what repays it and when, and how confident you are in both.
Where the exit is a development facility, the test is whether that facility will actually be available on the timescale assumed. A development lender will want a planning position, a cost plan, a contractor selected through a process it can see, and a team, before it commits. Assembling those takes longer than most purchase timetables allow, and the tender period alone is a programme item rather than a formality, as set out in procurement and contractor selection. A bridge taken on the assumption that development finance follows in a few weeks is a bridge with programme risk inside it.
Where the exit is a sale, the test is the sales period, in the market that will exist then rather than the one that exists now. Where it is a refinance, the test is whether the completed scheme will value and let at the level the refinance needs.
Where bridging turns into a problem
The pattern is consistent. A site is bought on a bridge on the expectation of a planning consent or a quick onward funding. The planning decision takes longer than assumed, or comes with conditions and obligations that change the appraisal. The bridge reaches its term, an extension is agreed at a cost, and the scheme now carries interest it never allowed for before a brick has been laid.
Planning timescales depend on the authority and on the application, so they cannot be assumed from another scheme. Where the consent is the thing the funding depends on, the deal structure should carry that risk explicitly, through a conditional contract or an option rather than through an optimistic loan term. The same logic applies to every pre-exchange unknown in seven site risks to check before you exchange.
As an example only, a scheme on a twelve month bridge that takes eighteen months to reach a development facility has six months of unplanned interest and extension cost, and that cost comes straight off the margin the scheme was bought on.
Deciding it properly
Three pieces of work settle the question. A programme that includes the planning route, the procurement period and the build, not just the build. A cash flow that shows when money is needed and in what size. And a cost plan solid enough for a development lender to size a facility against, because that is what turns the exit from an intention into a plan.
With those in place the choice usually becomes obvious, and often the answer is both in sequence with a defined handover point. What makes it work is that the cost information does not change when the funding does: the same measured cost plan, kept current, is what the bridge was taken against and what the development facility is sized on. That continuity is the job of development management, supported by ordinary cost planning and estimating work.
This article is general information, not financial, investment or legal advice.
Working out how to fund a purchase and a build?
We build the cost plan and cash flow both lenders will test, and set out what the exit actually depends on.