Short term facilities almost never fail because the asset was wrong. They fail at the end, when the money that was going to repay them arrives late, arrives smaller, or does not arrive. Everything difficult about transitional finance is concentrated in the last sixty days, and almost everything that determines how those sixty days go was decided before drawdown.
An exit is a thing a third party can verify
There are three real exits: a sale, a refinancing, or an identified injection of liquidity from elsewhere. Each is credible only when it can be tested by someone who does not share the borrower’s optimism.
A sale is evidenced by comparable transactions at the assumed price, by an agent’s written view of the timetable in that specific market, and where possible by an offer already in hand. A refinancing is evidenced by an indication from a named institution, or at minimum by a defensible account of the metrics the asset will present when the facility matures: income, occupancy, condition, licences complete. Liquidity from elsewhere is evidenced by the transaction that will produce it, with its own timetable and its own risks disclosed.
What none of them is: a sentence. “We will refinance with a bank” is not an exit, and a lender that accepts it as one is either mispricing the risk or intending to make its return from the extension rather than from the loan.
Each of the three is also a legal event with completion mechanics of its own, and the date a third party can verify is the date those mechanics finish rather than the date a credit committee sat. Where the refinancing is secured on Dutch real property, the security comes into existence only on a notarial deed followed by registration in the public registers, and that deed has to identify the claim secured, or the facts from which the claim can be determined, and to state the amount, or where the amount is not yet fixed the maximum amount, that can be recovered from the property. A party signing through an attorney needs a power of attorney granted by authentic deed. None of that yields to goodwill, and all of it is verifiable from a register rather than from a letter.
Build the timetable backwards, then add the gap
Take the maturity date and work back. A bank refinancing requires a credit process, a valuation, legal work and notarial completion, and in Spain the registration that follows. Three months is quick. A sale requires a buyer, a deposit, the buyer’s own financing, and completion. Anything involving a new build additionally requires the first occupation licence and the registration of the new construction before units can be delivered.
The gap between practical completion and money in the account is the single most underestimated period in real estate finance. Two to three months is routine. A facility whose term ends the week the building is finished is a facility that will need extending, and the price of an extension negotiated under pressure is not the price of one negotiated at the outset. Our note on development and construction finance in Spain deals with that sequence in detail.
Set the maturity for the day the money actually arrives, not the day the work is done. The distance between those two dates is where short term lending goes wrong.
Negotiate the extension before you need it
The extension clause is worth more attention than the interest rate. Three questions decide it. Is extension a right the borrower can exercise, or a request the lender may refuse. What does it cost, expressed as a fee and a rate, agreed now rather than determined later. And what conditions attach to it, since an extension conditional on a valuation that has to be at least a certain figure is not an extension, it is an option the lender holds.
A borrower who secures a contractual right to extend for a stated period at a stated price has bought insurance against the most likely thing that will go wrong. It usually costs a fee at the outset. It is almost always worth it.
The interest the file assumes is deductible
A refinancing is priced on a cover ratio, and the cover ratio is computed on an interest cost the borrower assumes it can deduct. In the Netherlands that assumption is capped by statute rather than by the loan agreement. Article 15b of the Wet op de vennootschapsbelasting 1969, in the version in force since 1 January 2026, disallows the balance of interest for a year to the extent that balance exceeds the higher of 24.5 per cent of adjusted profit and one million euro. The balance is interest expense on loans less interest income on loans, and it is never lower than nil. Adjusted profit is the year’s profit computed without the limitation, increased by depreciation on business assets, adjusted for write-downs to a lower business value and for the reversal of such write-downs, and increased by the interest balance for the year apart from the part of that balance consisting of interest capitalised as a production cost, and it too is floored at nil.
The percentage has moved more than once, which matters whenever a file carries balances from earlier years. The version in force on 1 January 2019 allowed 30 per cent of adjusted profit, the version in force on 1 January 2022 allowed 20 per cent, and the version in force on 1 January 2025 set 24.5 per cent, where it has stayed. The one million euro amount is the same in all four versions.
The Dutch figures are stricter than the European floor they implement, and deliberately so. Article 4 of Directive (EU) 2016/1164 makes exceeding borrowing costs deductible up to 30 per cent of earnings before interest, tax, depreciation and amortisation, and lets a Member State give a taxpayer the right to deduct up to EUR 3,000,000, or to deduct in full where the taxpayer is a standalone entity. Article 3 of the same Directive provides that it does not preclude domestic provisions aimed at a higher level of protection for domestic corporate tax bases. The Dutch section that implements it, articles 15b to 15bc, takes neither of those options: there is no full deduction for a standalone borrower, and no grandfathering for loans concluded before 17 June 2016, which the Directive would have permitted.
The carry forward, and the exit that erases it
Interest disallowed under that cap is not lost at once. It carries to the following year and is deducted there to the extent that year’s balance falls below the threshold, in the order in which the balances arose. The amount carried forward is fixed by the inspector by a decision open to objection, issued at the same time as the assessment for the year in which the balance arose and stated separately on the assessment notice, and it can be revised afterwards only on a fact the inspector did not know and could not reasonably have known, unless the taxpayer was acting in bad faith. The amount actually deducted in a later year is fixed by a second decision, again shown separately on the assessment notice, and an appeal against that one can relate only to the carry forward rule and to the rule that follows it. Those decisions, not a spreadsheet, are what the incoming lender’s tax adviser will ask to see.
The rule that follows is the one that turns an exit into a tax event. Where the ultimate interest in the borrower has changed to a significant extent compared with the beginning of the oldest year whose interest balance has not been fully deducted, the balances that arose before the change are no longer taken into account after it. In the year of the change, the balance and the adjusted profit before and after that moment are determined separately, and the one million euro amount is apportioned over the year. An increase in the holding of someone who already held at least a third of the ultimate interest at the beginning of that oldest year is left out of account. A sale of the asset and a sale of the shares are therefore not two routes to the same place, and a borrower carrying years of disallowed interest should establish which one it is selling before it signs heads of terms.
Who is on the other side of the loan
The identity of the lender changes the analysis more than the size of the loan does. The Wet bronbelasting 2021 charges a withholding tax on interest, and the interest it reaches is remuneration of any kind, costs included, owed under loans by a Dutch withholding agent affiliated with the recipient, or by a non-resident agent to the extent the corresponding cost is attributed to a permanent establishment in the Netherlands. Affiliation turns on a qualifying interest, meaning an interest that allows such influence over the decisions of a body that the activities of that body can be determined, and the statute extends it to bodies acting together with the avoidance of tax as a main purpose. A facility from an unconnected lender falls outside the charge. A shareholder bridge, or a refinancing taken from an affiliate to buy time, does not.
Whether the charge bites then depends on where the recipient sits. It applies where the recipient is established in a low tax jurisdiction, meaning a state designated by ministerial regulation that on 1 October of the preceding calendar year either does not subject bodies to a tax on profits or does so at a rate below 9 per cent, or that appears on the European Union list of non-cooperative jurisdictions in force in the preceding year. It also reaches a recipient established elsewhere where entitlement to the interest has as a main purpose the avoidance of tax at another person’s level and the arrangement is artificial, which is the provision that catches an entity interposed to improve a treaty position. The rate is the highest percentage in the corporate income tax table, which charges 19 per cent on the first 200,000 euro of taxable amount and 25.8 per cent above it, so the withholding for 2026 is 25.8 per cent of the gross interest.
An instrument chosen for its tax treatment carries a third exposure. Payments under a financial instrument are not deductible to the extent they produce a deduction without a corresponding inclusion within a reasonable term because two states classify the instrument differently, and the same provision denies the deduction where the payment produces a double deduction. It applies only between the taxpayer and an affiliated body or person, between a head office and a permanent establishment, between permanent establishments, or under a structured arrangement. The European rule behind it is blunter: where a hybrid mismatch results in a deduction without inclusion, the deduction is denied in the Member State that is the payer jurisdiction, and a deduction is also denied for a payment that directly or indirectly funds deductible expenditure giving rise to a hybrid mismatch through associated enterprises or a structured arrangement, unless one of the jurisdictions involved has made an equivalent adjustment. The sting is evidential. The taxpayer has to keep in its records the data showing whether and how the section applies to a payment, and where it has not, an inspector who suspects the section applies can require it to prove that the section does not.
Refinancing means presenting a different asset
The point of a bridge is that the asset changes during the term: it gets built, let, licensed, repaired, or freed of a problem. The refinancing bank is looking at the asset at the end, not the one at the start, and the file has to be assembled for that audience.
That means keeping, from day one, the documents the next lender will want: certified progress, licences, the building book, tenancy agreements with their dates and indexation, service charge accounts, and a clean registry position with the works registered. Borrowers who assemble this at the end discover that documents which were easy to obtain at the time are difficult to obtain a year later. The requirements are set out in our note on what a lender needs before opening your file, and they apply to the exit as much as to the entry.
What to do when the exit slips
Tell the lender early. This is counterintuitive and it is the single most valuable behaviour available to a borrower. A lender informed sixty days ahead has options: extension, partial repayment, a revised timetable. A lender informed the week before maturity has one option, and it is the expensive one.
Bring a proposal rather than a problem: what has slipped, by how long, why, what is being done, and what is offered. Partial repayment from another source, additional security, a fee, an increased rate for the extended period. Lenders in this market are commercial and they price certainty. What they cannot price is a borrower who has gone quiet.
It helps to know what the other path looks like, because it is slower and more public than borrowers expect. Once the debtor is in default, a Dutch mortgagee is entitled to have the property sold publicly before a competent notary. A private sale is possible only if the interim relief judge so determines, on a contract submitted to him for approval with the request, and a more favourable offer put to him before the hearing closes can displace the contract he was asked to approve. The request is filed by an advocate or a notary, and no appeal lies against his decision. The purchase price is paid into the hands of the notary and the costs of the execution come out of it. For pledged assets the pattern repeats: public sale is the default, the court can order a different manner of sale or that the pledgee keep the asset at a price the court sets, and the parties can agree another manner between themselves only once the right to sell has arisen. What a secured lender cannot do, in either case, is simply keep the asset: a clause permitting appropriation is void.
And if the exit has failed rather than slipped, say so and address it, because the options available while there is still equity in the asset are entirely different from the options available once there is not. Our note on when transitional finance makes sense sets out the point at which this structure stops being appropriate.
Montclare structures and arranges financing secured on European assets, and prepares the corporate and tax structure that sits behind it. Our services are set out on our services page.
This article is informational and does not constitute tax, legal or financial advice. Lending and credit intermediation are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.