Bridge Loan vs. Developer Loan: When to Use Each One
The bridge loan is fast, transitional financing that covers a specific liquidity need — buying land or closing a deal, for example — and is repaid through a sale, a capital injection or follow-on financing. It typically features short terms (6–24 months), bullet amortisation and a higher cost. More information
The developer loan finances land, construction and associated costs through milestone-linked drawdowns, over longer terms (construction + sales period), and is evaluated using ratios such as LTV/LTC/DSCR. More information
Choose a bridge loan when you need speed or do not yet meet developer loan requirements. Choose a developer loan when the file is fully prepared (appraisal, permit, schedule, pre-sales) and you want the most competitive all-in cost.
Table of Contents
- Two solutions for different moments
- Quick comparison
- What does this look like in practice?
- Decision tree: Bridge Loan vs. Developer Loan comparison
- Total cost: what is the difference in the APR
- Requirements that ease the negotiation
- Common mistakes (and how to avoid them)
- What if I combine both?
- Conclusion
- Frequently Asked Questions
The financial conditions detailed in this post are indicative only and will vary depending on the lender, the borrower's profile, the specific characteristics of the transaction and prevailing market conditions. Nothing here constitutes a binding offer or guarantee of financing.
Two solutions for different moments
Picture this: you find an opportunity to buy a plot at a good price, but the window is tight and you still lack permits or pre-sales. This is where the bridge loan earns its place — speed, collateral-focused underwriting and a clear exit (sale, capital injection or subsequent developer loan). It is transitional financing built to buy time without losing the deal.
If, on the other hand, your project is fully prepared — appraisal complete, permit in hand, budget and schedule locked in, certificates plan ready — the natural choice is a developer loan. It finances land, construction and costs through milestone-linked drawdowns, and at comparable risk levels typically carries a lower all-in cost than a bridge loan.
IN SUMMARY: Bridge loan when you need speed or don't yet meet the requirements. Developer loan when the project is ready to execute on an orderly financial schedule.
Quick comparison
| Criterion | Bridge Loan | Developer Loan |
|---|---|---|
| Purpose | Immediate, temporary liquidity to reach definitive financing or a sale | Finance land + construction + costs through to delivery and sale |
| Typical term | 6–24 months (sometimes 36) | 18–48 months (construction + sales period) |
| Drawdowns | One or a few tranches, released quickly | Milestone- or certificate-linked |
| Amortisation | Typically bullet (interest-only, principal repaid at maturity) | Linked to drawdowns; capital follows construction schedule |
| Guarantees | Mortgage/collateral and, where applicable, additional security | Mortgage over land/construction, assignment of pre-sale receipts, covenants |
| Cost | Higher, reflecting speed and transitional nature | More competitive when the project meets key metrics |
| Requirements | Streamlined documentation; critical: a clear exit plan | Appraisal, permit, project, budget, schedule, pre-sales, LTV/LTC/DSCR ratios |
| Key risk | Failing to execute the exit on time | Cost, timeline or sales shortfalls |
Weighing up financing options for your real estate project? Contact us for a free initial assessment. Our team will respond within 24 hours with a personalised evaluation of your options.
What does this look like in practice?
If you are unsure which situation applies to you, the following scenarios may help.
Scenario 1 — An opportunity that cannot wait. You have a 30-day option on a plot but no permit or pre-sales yet. A bridge loan lets you secure the purchase. Nine to twelve months later, with your documentation in order, you refinance into a developer loan and continue at a lower cost.
Scenario 2 — A project ready to break ground. Permit granted, project and budget finalised, contractor appointed, solid pre-sales in place. Here the developer loan fits from day one: drawdowns track real construction progress and the financial schedule aligns with certificates.
Decision tree: Bridge Loan vs. Developer Loan comparison
1. Do you need funds within 60 days to close something critical?
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Yes: Consider a bridge loan. Bridge loans are short-term instruments designed for urgent capital needs. They are useful for closing deals quickly or covering unexpected costs that require an immediate injection of funds. The key advantage is speed of approval, though rates are typically higher than other financing options.
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No: Continue to the next step.
Do you already meet the standard developer loan requirements (appraisal, permit, pre-sales, ratios)?
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No: Use a bridge loan to buy time. If your project does not yet meet the typical lender thresholds for developer financing — a favourable appraisal, planning consent, adequate pre-sales or solid financial ratios — a bridge loan can provide the runway needed to address those gaps while the project advances.
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Yes: Continue to the next step.
Does your project have a schedule, budget and clear milestones for construction certificates?
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Yes: Target developer loan financing. A detailed plan, well-defined budget and clear certificate milestones put you in a strong position to seek developer financing — which is designed precisely for projects with solid planning and a clear path to completion.
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No: Consider a bridge loan while you build out the file. If the project still lacks a detailed plan, a precise budget or defined milestones, a bridge loan can provide the capital needed to develop these elements before pursuing long-term financing.
Can you demonstrate LTV/LTC/DSCR ratios within the lender's thresholds?
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Yes: Target developer loan financing. If your project's key ratios — Loan-to-Value (LTV), Loan-to-Cost (LTC) and Debt Service Coverage Ratio (DSCR) — fall within acceptable lender ranges, you are well-positioned for developer financing. These ratios are the core indicators of a project's financial health and its ability to service the debt.
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No: Consider a bridge loan paired with a transition plan. If the ratios are not yet there, a bridge loan can work as a bridge to improving them — provided you have a credible plan showing how you will increase revenue, reduce costs or improve project efficiency to meet the developer loan criteria down the line.
Is there a realistic exit for the bridge loan (sale, equity injection, novation to developer loan)?
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Yes: Proceed with the bridge loan. Before committing, confirm that a realistic exit strategy exists to repay it — whether through a sale, fresh equity or novation into developer financing once you meet the requirements.
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No: Restructure before signing. Without a clear exit strategy, a bridge loan can become a serious liability. Revisit the deal structure, explore alternative financing or revise the project plan before signing anything.
Total cost: what is the difference in the APR
The rate is only part of the picture. Always compare the total all-in cost:
- Bridge Loan: interest (often on a fixed principal if bullet), arrangement fee, potential extension fees, and closing costs (appraisal, notary, registration).
- Developer Loan: interest on drawn balances only (not on the full facility from day one), fees and the same standard closing costs.
- Watch out for extensions on bridge loans without a clear exit, and cost/timeline overruns on developer loans — both drive up the effective APR.
If it helps, we can run a simulation with your figures and schedule to show the effective APR of each option side by side.
Requirements that ease the negotiation
- Bridge loan: ownership and status of the asset, valuation, purchase contract or reservation if applicable, and a dated, quantified exit plan.
- Developer loan: ECO appraisal, planning permit, project drawings (basic or full execution), detailed budget, schedule, contractor appointment, pre-sales and a financial model supporting LTV/LTC/DSCR.
- The more complete the file, the better the odds of competitive terms and a fast decision.
For a detailed breakdown, see our guides on requirements for construction and real estate development loans and developer loan requirements.
Common mistakes (and how to avoid them)
- Signing a bridge loan without a defined exit. Mitigate this by having advance contracts, mandates or clear milestone dates in place before you sign.
- Misaligning construction and financing schedules. Your certificate schedule must match your drawdown schedule — make sure both are drafted together.
- Underestimating contingencies. Build in reserves for cost and timeline surprises. Lenders value this discipline, and it reduces your own risk exposure.
What if I combine both?
This is a very common approach: start with a bridge loan to secure the opportunity, then novate to a developer loan once the file is mature. Structure the transition from day one — agree in advance which milestone triggers the switch, how much is repaid and on what terms.
Conclusion
- If you have a narrow window and cannot afford to miss the deal, let us structure a Bridge Loan and define the exit strategy up front.
- If your project is already ready, let us move straight to a Developer Loan with a milestone-linked drawdown schedule.
With over 20 years of experience helping developers find financing, we have seen that properly structuring a loan — whether bank or private — shortens development cycles and maximises returns by cutting opportunity costs.
The right choice between a bridge loan and a developer loan depends on the specifics of your project and the current market environment. Getting specialist advice can be the difference between a completed deal and a missed one.
Do you have a real estate project that needs financing? Contact us for a personalised assessment. Our team will respond within 24 hours with a recommendation on the best loan structure for your situation.
Frequently Asked Questions (FAQs)
What is a real estate developer loan?
A developer loan is specialised financing covering land acquisition, construction and associated costs for a real estate development. It is structured around progressive drawdowns tied to construction certificates and evaluated using ratios such as LTV (Loan-to-Value), LTC (Loan-to-Cost) and DSCR. Unlike a standard loan, it tracks the full project lifecycle — from land purchase through to the sale of completed units.
What is a bridge loan in real estate?
Fast, temporary financing (6–24 months) that bridges a specific liquidity gap, repaid when an exit event occurs: asset sale, equity injection from investors, or refinancing into a permanent developer loan. Its main advantage is speed of approval, though it carries a higher cost reflecting its transitional nature.
When is it advisable to apply for a developer loan?
A developer loan is the right call when your project is mature and execution-ready: building permit granted or close to being granted, technical drawings and budget finalised with a contractor appointed, a detailed schedule with clear milestones, and pre-sales or a commercial plan that supports the lender's LTV/LTC ratios (typically 60–75%). Meet those criteria and you will access significantly better terms than a bridge loan offers.
Can I start with a bridge loan and then switch to a developer loan?
Yes — this is a very common strategy in real estate development. The bridge loan lets you lock in the land purchase or grab a time-sensitive opportunity while you complete the requirements (permits, pre-sales, technical documentation). Once the file is ready — typically within 6–12 months — the outstanding balance is novated to a developer loan with better terms, milestone-linked drawdowns and a lower financial cost. Plan the transition from day one to avoid surprises.
Which is cheaper: a bridge loan or a developer loan?
At comparable risk, the developer loan is more competitive. The bridge loan commands a premium for its speed and transitional nature — higher rates and greater fees are typical. The key is to compare the total all-in cost: APR, arrangement fees, valuation, notary and registration. With a developer loan, you also only pay interest on amounts actually drawn, not on the full facility from day one.
What LTV and LTC ratios are required for a developer loan?
Figures vary by lender, project type and developer track record, but typical ranges are:
- LTV (Loan-to-Value): 60–75% of the final appraisal value (GDV – Gross Development Value)
- LTC (Loan-to-Cost): 70–85% of total project cost (land + construction + costs)
- DSCR: minimum 1.2–1.3x debt service coverage
The key is building a robust financial model with realistic pre-sales, conservative margins and defensible timelines. The stronger the file, the better the terms you will negotiate.
How do drawdowns work in a developer loan?
Drawdowns are released by milestone or construction certificate, synchronised with actual project progress. A typical schedule looks like:
- Land purchase (30–40% of the loan)
- Construction start / foundations (10–15%)
- Structure and enclosure (20–25%)
- Fit-out and finishes (15–20%)
- Practical completion / first occupancy licence (remaining balance)
This structure protects both the lender (who disburses only in line with real progress) and the developer (who avoids paying interest on undrawn capital). The project manager certifies each phase before funds are released.
What happens if construction is delayed on a developer loan?
Delays can materially increase project costs. On a developer loan, build time contingencies (15–20% above the planned schedule) and cost contingencies into your financial model. If a delay does occur, notify the lender as early as possible to negotiate a maturity extension — though extensions typically carry additional fees. On a bridge loan, avoid improvised extensions: restructure proactively, or accelerate the transition to a developer loan if you already qualify.
Do I need pre-sales to obtain a developer loan?
It depends on the lender and the project profile. Pre-sales (20–30% of units committed) significantly strengthen your application — they demonstrate real demand, reduce sales-period risk and improve DSCR ratios. That said, developers with a strong track record and projects in prime locations can access financing without pre-sales, albeit with more conservative LTV/LTC ratios. If you have no pre-sales, offset this with proven experience, wide margins, an excellent location and a credible commercial plan.
