Quick answer
The right bridging loan amount covers the full cash need to the exit, including settlement costs, fees and any capitalised interest, plus a sensible buffer, while leaving enough equity that the exit comfortably repays the balance. Borrowing too little risks a second loan mid-term; borrowing too much adds cost and pushes peak debt closer to what the exit can repay.
Key points
- List every cost between now and the exit, not just the headline need
- Decide how interest will be handled before sizing the loan
- Add a buffer for delays and cost overruns
- Test the exit against peak debt at a conservative sale price
- Keep enough equity headroom for an extension if needed
Why sizing is the most important decision
Most bridging loan problems trace back to the amount. Borrow too little and the business runs short halfway through the term, needing a top-up with fresh documents, fees and delay, often at exactly the moment the exit is under pressure. Borrow too much and the business pays for money it did not need, while the balance at exit creeps closer to what the sale or refinance can actually repay.
Getting the amount right starts with an honest list of everything the loan must cover and an honest estimate of what the exit will deliver.
Step one: list the genuine need
Start with the purpose. If you are buying a property before selling another, that might be the purchase price less your deposit. If you are clearing an ATO debt, it is the full balance including penalties and interest charges. If you are funding a contract, it is materials and labour until the first payment.
Then list everything that sits around that core need:
- transfer duty on any purchase
- GST payable at settlement on a taxable commercial purchase
- legal and conveyancing costs
- adjustments for rates, water and strata levies
- payout amounts for any loans being cleared
- holding costs during the term, such as rates, insurance and land tax
- selling costs for the exit property, if the exit is a sale
Each of these is easy to underestimate. Writing them down is the single best protection against a shortfall later.
Step two: decide how interest is handled
Interest can be prepaid from the advance, capitalised by adding it to the balance, or paid monthly. Each changes the sizing.
- Prepaid: the advance must be large enough to cover both the need and the prepaid interest.
- Capitalised: the advance covers the need; interest adds to the balance, increasing peak debt.
- Monthly: the advance covers the need; the business must fund interest from cash flow.
Our guide on prepaid versus capitalised interest explains the trade-offs.
Step three: add a buffer
Bridging loans run on timelines that rarely go exactly to plan. Sale campaigns run longer, refinances need extra documents, contract payments slip. A buffer covers some of those risks:
- Time buffer: a longer term than the best case, so interest for those months is planned.
- Cost buffer: an allowance for unexpected costs, such as repairs before sale.
The size of the buffer depends on how certain the exit is. A signed, unconditional sale contract needs less buffer than a property not yet listed.
Step four: calculate peak debt
Peak debt is the most you will owe, usually on the last day of the term. It equals the loan amount plus any capitalised interest and fees added to the balance. Calculate it under your expected term and under a longer one.
The bridging cost estimator calculates peak debt and the cash left at exit from the figures in your quote.
Step five: test the exit conservatively
Now compare peak debt with the exit.
For a sale exit, start with a realistic sale price based on recent comparable sales, not the asking price. Subtract agent commission, marketing, legal costs and any other loans secured on the property that must be repaid. What remains is the amount available to repay the bridge.
For a refinance exit, estimate what the new lender will lend, based on its valuation and criteria, not what you hope it will lend.
If the conservative exit covers peak debt with a comfortable margin, the size is sound. If the margin is thin, reduce the amount, shorten the term, prepay interest, or add security. The exit strategy timeline helps you set a realistic term.
Have your bridging loan sized by a specialist before you commit to a purchase.
An illustrative sizing exercise
Illustrative only. A business wants to buy new premises for $1,400,000 before selling its existing building, expected to fetch around $1,100,000.
| Item | Amount |
|---|---|
| Purchase price less deposit already paid | $1,260,000 |
| Transfer duty and legal costs (estimate) | $85,000 |
| Holding costs during the term | $15,000 |
| Buffer for repairs before sale | $20,000 |
| Total cash need | $1,380,000 |
The bridge is secured over both properties. With interest capitalised for nine months, peak debt is the loan plus interest and fees. At a conservative sale price of $1,050,000, net proceeds after selling costs reduce peak debt substantially, and the remaining balance is refinanced to a bank as an ordinary loan over the new premises. The numbers work, with headroom if the sale takes three months longer.
Leave room for flexibility
Equity headroom matters if the exit is delayed. If the loan starts at a moderate LVR, there is room for interest to capitalise for extra months without breaching the lender’s limits. If it starts at the maximum, an extension may require a partial repayment or additional security. Starting with headroom is cheaper than negotiating it later.
Common sizing mistakes
- forgetting transfer duty or GST on the purchase
- using the asking price rather than a realistic sale price
- ignoring selling costs when calculating net proceeds
- choosing a best-case term with no buffer
- borrowing at the maximum LVR with no room for capitalised interest
When the numbers do not work
If peak debt exceeds the conservative exit, do not hope the problem away. Options include buying a less expensive property, selling first, negotiating a longer settlement on the purchase, adding a second property as security or bringing in a partner. It is far better to change the plan before committing than to discover the gap at the end of the term.
When a smaller loan works better
Sometimes the analysis shows that a smaller bridge, combined with a short delay or a modest contribution from savings, removes most of the risk. A loan that covers ninety per cent of the gap with comfortable headroom can be wiser than one that covers every dollar at the lender’s maximum.
Reviewing the size during the term
Even a well-sized loan should be reviewed as the term progresses. If the sale campaign is going well, consider whether early repayment is possible. If costs are rising, act early rather than waiting for the balance to approach the limit.
Sizing with a specialist
A specialist can model the amount, interest treatment, term and exit with you in a single conversation, using current sales evidence and realistic costs. Tell us the purpose, the properties involved, what is owed and how the loan will be repaid. There is no credit check when you first enquire, your details stay within one team, and accurate figures on costs and the exit let us recommend an amount you will be comfortable with at the end of the term as well as the start. Size your bridging loan.
Frequently asked questions
Should I borrow extra just in case?
A sensible buffer is wise, but borrowing far more than you need adds cost and reduces headroom. Size the buffer to realistic risks such as delays or cost overruns.
How do I estimate the exit amount?
For a sale, use a conservative price based on recent sales, minus agent fees, marketing and any loans to be repaid. For a refinance, use what the new lender is likely to approve.
What happens if I need more money mid-term?
A top-up may be possible if there is equity, but it means new documents and costs. Sizing properly at the start avoids this.
Does the loan amount include fees?
It depends on the structure. Fees and prepaid interest may be deducted from the advance or added to the loan, which changes how much cash you receive.
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