What To Look For In A Bridging Loan Facility Letter

The facility letter is one of the most important documents in any bridging loan. It sets out the full terms of the agreement, from interest structure to fees, penalties, and lender protections. Once signed, it becomes legally binding.

Before we look at what to check, it helps to understand exactly what a facility letter is — and why it matters.

A bridging loan facility letter is the formal agreement issued by a lender once credit is approved. It outlines the full structure of the loan, including:

• How and when interest is charged
• Applicable fees (including exit, early or late repayment penalties)
• Default events and lender rights
• Borrower obligations during the term of the loan

Unlike a quote or term sheet, the facility letter is legally binding once signed.
In our experience at Avid Finance, the facility letter is where the real detail lives. It often contains commercial terms that are not visible in the initial quote or heads of terms. Understanding these terms is essential if you want to avoid surprise costs or restrictions later in the deal.
This guide outlines the key clauses to review before signing, drawing on real examples from recent client transactions.

Most bridging loans charge interest monthly in advance. That means if your loan rolls over on the first of the month and you repay on the second, you’ll still be billed for the full month. A one-day delay can cost thousands.

Some lenders offer daily interest, calculated at redemption. This gives borrowers more flexibility around exit dates, although it may come with a higher rate or stricter terms elsewhere in the deal.

At Avid Finance, we regularly model these differences for clients. In one recent case, a delay of just three days would have added over £8,000 in interest under one lender’s structure. A daily interest lender reduced that risk significantly.

If you’re comparing monthly vs daily interest on bridging loans, this clause deserves close attention.

Exit fees vary significantly between lenders. Some apply a fixed % to the total facility. Others apply it only to the amount drawn. Some fees are conditional on loan duration, while others apply regardless of when you repay.

For example, one client accepted a bridging loan at a rate of 0.45% per month. They understood the rate would increase after six months but overlooked a flat 1.25% exit fee in the facility letter. The fee applied no matter when they redeemed.

Before you sign, always check:

• Whether the exit fee is fixed or conditional
• Whether it applies to the full facility or the drawn amount
• Whether it is clearly disclosed in the facility letter

Two offers that look similar on interest rate alone can vary significantly in total cost once exit fees are included.

Default clauses are standard in bridging loan agreements, but the detail matters. A facility letter will define what counts as a default and what action the lender can take if one occurs.

Defaults aren’t limited to missed payments. They can include:

• Delays to project milestones
• Reductions in property value
• Breach of loan covenants
• Failure to supply requested documentation

If triggered, the lender may charge penalty interest, demand immediate repayment, or appoint Receivers.

In one recent case, a borrower was considered in default simply because a scheduled site inspection was postponed. Some lenders are pragmatic in these situations. Others follow the letter of the contract strictly.

At Avid Finance, we advise clients not just on what a clause says but how it tends to be enforced by the specific lender.

Bridging finance is often time-sensitive, so repayment flexibility is important. Some lenders allow early redemption without penalty. Others impose:

• Minimum term charges
• Early repayment fees
• Penalties for late repayment, often 3% to 5% of the loan amount

We supported a client converting their bridging loan to a buy-to-let mortgage. Delays in the refinance put them at risk of triggering a 5% late repayment fee, equal to £15,000. We arranged a re-bridge with a lender known for fast completions and completed the deal just in time to avoid the charge.

Check your facility letter carefully to confirm:

• Whether early redemption is allowed
• Whether there is a minimum term
• What happens if you repay late, even by a few days

Not all costs are visible in the headline rate or interest table. Many appear deeper in the facility letter or in supplemental documentation. These may include:

• Non-utilisation fees on undrawn funds
• Monitoring surveyor or valuation update charges
• Lender legal fees, including review of your solicitor’s work
• Drawdown fees or asset management charges

Individually, these fees may seem minor. Together, they can increase the total cost of borrowing by 1% or more.

We help clients identify and quantify these costs early, so they’re not caught off guard after signing.

We don’t just source loans. We help our clients understand them.

At Avid Finance, we:

• Review draft facility letters line by line
• Model repayment and redemption scenarios
• Highlight clauses that may be unclear or uncommercial
• Use real-world lender experience to provide practical advice

This level of support can be the difference between a deal that works and one that creates unforeseen costs or delays.

Call Dan Scott on 020 3920 6920 or get in touch with Avid Finance today.