Net advance: what a bridging facility really releases

The single most common modelling error in refurbishment finance is to treat a facility as cash arriving on completion. It is not. Between the headline figure on the offer and the money that actually lands in the account there is a gap, and the gap is the sponsor's problem, discovered at the worst possible moment — the day of completion, when the shortfall has to be found from somewhere.

What is the net advance?

The net advance is the cash the lender actually releases at drawdown, after everything deducted up front. On a facility with retained interest, the whole term's interest is taken on day one. The arrangement fee comes out too, and often the lender's own legal costs. A facility of a given face value over twelve months at a retained rate releases a good deal less than its face value, and every figure downstream — the deposit needed, the works schedule, the contingency — depends on that smaller number.

Why does retained interest exist at all?

Because a property under refurbishment produces no income to service a loan. Retention suits a borrower with nothing coming in: there is nothing to pay monthly, because it has already been taken. It is not free — the interest is charged on the full facility for the full term whether or not the project runs to time — and whether an early exit refunds the unused portion is a term of the facility worth reading before comparing two lenders on headline rate alone.

How does this change the capital stack?

The capital stack is every source of money in the purchase, ordered by who is repaid first. It is only sound if each layer is costed at what it releases rather than at what it says on the offer. A stack built on face values shows a gap at the top that looks closeable and is not, because the debt layer is smaller in cash than it appears. Deriving the sponsor's required equity from the net advance rather than the facility is the difference between a stack that closes and one that fails a week before completion.

Loan to GDV matters here too. A facility sized against the gross development value can look conservative on paper while the net advance leaves the sponsor short on day one — the two questions are different, and a deal that passes one can fail the other.

What to do with the number

• Model the deposit and the works on the net advance, never the face value of the facility.
• Treat transfer tax as non-lendable cash: no bridging facility advances against stamp duty, so it comes out of the sponsor's own money on the day.
• Read whether retained interest is rebated on an early exit before comparing lenders on rate.
• Charge the arrangement and exit fees into the deal, because they are money the sponsor never sees and a deal costed without them is costed wrong.

A facility is a promise to lend, not a cheque. The net advance is what the promise is worth in cash on the day, and it is the only figure a capital stack can honestly be built on.