If you’re a developer or investor who needs a short-term injection of capital - from a modest £50k to institutional-size £500m - you know the pain. Deals collapse, costs spiral, and lenders suddenly have opinions about your exit strategy. The core problem isn’t lack of capital. It’s matching the right product to the deal, fast enough and without giving away the farm. Below I set out the practical factors that matter, the common routes people try first, the alternative approaches that often get overlooked, and a clear way to choose the right path for a specific deal.
3 key factors when choosing short-term funding for a property project
There are many moving parts but three variables consistently determine whether a funding solution will work or fail:
1. Certainty and speed of availability
A lender who promises a low headline rate but takes six weeks to issue legal terms is useless on a one-week completion. Developers need certainty - can the facility complete when you need it, and will the drawdown terms change at the eleventh hour? For short-term finance the time to drawdown can be binary: either you get the cash in the time window or the whole deal blows up.
2. True cost and effective term
Interest rate is only one line in the ledger. Arrangement fees, exit fees, interest on rolled-up balances, valuation and legal charges, monitoring fees and early repayment penalties stack up quickly. You must convert every offer into an effective cost per annum and compare that to the project’s internal return and the cost of delaying or failing the deal.
3. Exit certainty and security profile
Most short-term finance requires a credible exit - refinance, presale, asset sale or equity injection. Lenders care about the exit as much as you do. If the exit is shaky, expect higher cost, tighter covenants and more security. Security packages can cascade through group companies and third-party guarantors - that changes your balance-sheet and future borrowing capacity.
Other important, but secondary, considerations are regulatory status, reputational risk, and operational friction: how intrusive will monitoring be, and does the borrower want a lender who controls site decisions?
High-street lenders and standard bridging: pros, cons and real costs
The natural first stop for many borrowers is the high-street bank or mainstream bridging lender. Their marketing is comfortable, interest look reasonable, and the paperwork feels familiar. That’s attractive, but it comes with trade-offs.
Pros of standard bank and bridging routes
- Lower headline costs for well-documented, low-risk projects Established processes for valuations, legal completion and post-completion monitoring Credit committees and formal governance mean some protection against arbitrary term changes
Cons and real costs you will see
- Speed: high-street lenders often take weeks to appraise a non-standard deal. That’s fatal if you’ve an offer deadline or auction purchase. Conservatism: banks push low loan-to-value (LTV) limits on developments and refurbishments. They require experienced sponsors, detailed budgets and contingency buffers. Hidden fees: typical bridging deals carry arrangement fees (1-3%), monthly interest of 0.6%-1.5% (7-18% pa), valuation and legal costs, and sometimes exit or utilization fees. Conditionality: release of funds often tied to staged valuations and certifications, which slows progress and increases operational risk.
Example: a £5m short-term bridging facility for 12 months at 1% per month (12% pa), with a 2% arrangement fee and £15k in legal/valuation fees, will cost roughly £600k in headline interest plus £100k in fees - not trivial when you model project returns. If your exit fails and you roll the facility, costs compound fast.
In contrast, if the project is a straightforward buy-to-let refinance with strong covenants and an expected long-term mortgage exit, the bank route is often the lowest friction and cost. But that clarity is rare in development and value-add plays.
How private bridge and mezzanine lenders differ from high-street options
When deals need speed, flexibility or a higher LTV, developers turn to private bridge lenders and mezzanine funds. These are the tools of choice for tight completions, auction purchases and gap financing. They close faster, and they do things bank credit committees won’t.
What private lenders offer
- Faster decision-making and drawdown - often days rather than weeks Higher tolerance for non-standard exit routes and short-term complexity Structures that combine senior and junior layers, letting sponsors access a greater stack of capital
Trade-offs you must accept
- Higher cost: private bridge interest is higher than the high-street. Expect 0.8%-2.0% per month for smaller, riskier deals. Mezzanine sits higher again and may include equity kicks or payment-in-kind interest. Stricter security and covenants: private lenders want clear senior security and often charge for monitoring and control rights. Short-term risk concentration: relying on repeated short-term facilities without a robust refinance plan is a precarious capital strategy.
On the other hand, private lenders can structure creative solutions. For instance, a mezzanine tranche structured as interest roll-up plus a small equity stake can enable a sponsor to proceed without stamping down cash, preserving liquidity for construction. But that equity kicker dilutes upside and complicates later refinances.
Expert insight: for deals north of £25m, institutional private credit funds start to look competitive. They bring scale and can offer warehouse facilities for multiple developments. Those lenders behave more like banks on governance but are still quicker. They will, however, price for complexity and require deeper due diligence.
Joint ventures, crowdfunding and development exits: when they work
Loans are not the only way to bridge capital gaps. Equity strategies and alternative exits can remove or reduce the need for short-term debt.
Joint ventures and equity partnerships
Bringing in a JV partner can remove the need for high-cost short-term debt entirely. An equity partner takes a portion of the upside in exchange for capital and often brings balance-sheet strength that lowers overall financing cost. The downside is dilution and less control.
Crowdfunding and investor platforms
For smaller projects, peer-to-peer and property crowdfunding platforms can be a fast source of capital. They work best for projects with simple cash flows and clear exits, and where the borrower can access investors quickly. They are less effective for complex, high-ticket developments where institutional underwriting dominates.
Development exits and forward sales
Securing forward sales, pre-lets or conditional sales agreements removes the refinancing risk that scares lenders. A credible forward sale can be the single most powerful negotiating tool when seeking short-term capital. Similarly, sale-and-leaseback deals can unlock liquidity for income-generating assets quickly.
In contrast to debt, equity reduces repayment pressure and provides longer breathing space. But equity partners expect market returns and often more governance input. Use equity when the project IRR comfortably exceeds the equity hurdle and where reducing leverage materially improves certainty.
Choosing the right short-term funding route for your deal
Here is a practical decision process I give clients when the clock is ticking. Be ruthless: money that arrives late is the same as money that never arrived.
Step 1 - Start with the exit
Document the exit: who will refinance, at what LTV, or what sale process will unlock repayment? Stress test the exit - what if values drop 10-20% and sales take longer? If the exit has variables you cannot control, favour lenders who share risk (equity or mezzanine partners) or secure a hard sale/presale first.
Step 2 - Convert competing offers into an apples-to-apples cost
Ask every lender for a cashflow schedule of all fees and interest for the expected term. Convert variable fees into an annualised effective rate and compare that to your project yield. Watch for rolled-up interest and deferred fees that inflate the exit amount.
Step 3 - Time to legal and valuation
Factor in the lender’s operational timeline. If your completion window is seven days and the cheapest lender needs 21 days to issue terms and complete valuations, that lender is not a match, regardless of price.
Step 4 - Check the lender’s behaviour not just their price
- Ask for references from recent borrowers with similar deals. Confirm the lender’s appetite for your exit route and their flexibility on staged releases. Check regulatory status - some lenders are FCA-authorised and some are not. That affects what protections exist.
Step 5 - Run a sensitivity and safety buffer
Model downside scenarios: 10-15% cost overruns, two to three month sales delays, and slower exit refinance. Work out the headroom required and insist on a covenant package you can meet even under stress. If you find the project’s profit evaporates under mild stress, change the plan: reduce scope, raise equity, or accept a longer-term lender.
Thought experiment: a 12-month refurbishment needing £3m
Imagine you have a refurbishment requiring £3m for 12 months. Option A is a private bridge at 1% per month with a 2% arrangement fee. Option B is a bank-provided short-term overdraft at 0.5% per month but with a 4-week approval lead-time. If you must exchange on a property in 72 hours, property investor finance Option A might be the only viable route despite the higher cost. If you can secure a 28-day option or extension on completion, Option B becomes more attractive. The decision is driven by timing, not headline cost.
Thought experiment: a £100m urban regeneration requiring a 24-month warehouse
For institutional-sized deals, fragmentation is your enemy. Multiple small bridges from assorted private lenders increase legal complexity and risk of enforcement. A single institutional warehouse with clear tap-in mechanics, or a combination of senior bank finance plus a single mezzanine partner, reduces operational friction. It costs more than a bank alone, but it reduces execution risk - which can mean the difference between completion and collapse on a project of that scale.
Final practical tips from a straight-talking broker
- Never commit to a facility without a tested exit. Lenders sell certainty; you buy it. If your exit is a hope, treat cost estimates as optimistic. Get three credible term sheets in writing. Marketing claims are cheap; written terms are not. Use a broker who can speak both bank and private lender language. Many lenders won’t engage unless you present options they recognise. Read security documents before you accept commercial terms. Many “cheap” offers impose onerous group guarantees and cross-charges that cripple future deals. Keep a contingency buffer. Even if you expect to repay in 6 months, model to 12-18 months to avoid refinancing under stress. If you’re quoted a headline rate that looks too low for speed and complexity, be sceptical. On short-term deals the lowest price is rarely the safest choice.
Short-term property finance is not a commodity. The right solution depends on timing, exit, tolerance for dilution, and how much operational control you’re willing to give away. Successful borrowers treat funding as part of the deal design - not an afterthought. When you line up the exit first, price second and speed third, you stop wasting money on mismatched funding and start protecting returns and client money.
If you want, send a short summary of your deal - size, security, timeline, and exit plan - and I’ll sketch which routes are realistic and what a sensible costing and timetable looks like.