Commercial bridging loans
In the world of commercial property, opportunities don’t always wait for traditional financing.
Whether you’re seizing a sudden chance to buy a property, facing a funding gap, or need to act quickly at auction, a commercial bridging loan can be the key to unlocking your next investment.
These short-term loans provide the speed and flexibility you need to keep your plans moving, even when conventional options fall short.
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Bridging
What are Commercial Bridging Loans?
Similarly to a Residential Bridging loan, Commercial Bridging Loans are useful when there is a short-term funding gap.
The loan is available for almost any purpose and is secured against a commercial property, either one you own or one you are buying.
Unlike commercial mortgages, which involve lengthy approval processes and stringent criteria, bridging loans offer a swift and flexible solution.
They are commonly used to cover the funding gap between the purchase of a property and securing long-term financing or the sale of an existing property.
In the UK, commercial bridging loans range from £50,000 to several million pounds, with terms varying from a few weeks to 36 months.
While interest rates are higher when compared to long-term commercial mortgages, the speed and accessibility of these loans make them an attractive option for those needing to act quickly in the competitive commercial property market.
Bridging loans are available on residential, commercial and semi-commercial properties.
How Do Commercial Bridging Loans Work?
Commercial bridging loans work by providing borrowers with a lump sum of money, secured against the commercial property being purchased or refinanced.
Lenders can go up to 80% loan to value, which must include any other secured mortgages.
If you already own the property then this can be a very fast way of borrowing money, with funds available in just a few weeks.
The amount you borrow is given as a lump sum and there’s not normally a requirement to make any monthly repayments (good for cash flow). The interest is either retained, or rolled-up, and paid back at the end, along with the original debt.
Lenders are flexible and used to working to short timeframes. The funds can generally be used for any purpose.
As with all bridging finance, the most important part of the deal is your exit strategy. This is a plan of how you intend to repay the lender when the term ends.
How Can a Bridging Loan Benefit Your Business?
Commercial bridging loans, and bridging loans in general, offer several advantages that can significantly benefit your business and property ventures:
Speed and Efficiency
The most notable advantage is the speed at which these loans are processed.
Unlike traditional loans, which can take weeks or even months to approve, bridging loans can often be approved within a matter of days.
This rapid turnaround time is crucial when time-sensitive opportunities arise, allowing you to act decisively and secure your desired property before it’s snapped up by competitors.
Flexibility
Commercial bridge loans are remarkably flexible and can be tailored to suit your specific needs.
Whether you’re looking to purchase a new commercial property for your business, refurbish an existing building, or fund urgent business expenses, bridging finance can provide the necessary capital.
This versatility makes them a useful option for a wide range of property investors and businesses.
Accessibility
Bridging loans are more accessible than traditional financing options.
They are available to a wide range of borrowers, including individuals, limited companies, SPVs, and those with less-than-perfect credit histories. This inclusivity opens up opportunities for those who may have been turned away by traditional lenders.
Bridging the Gap
As the name suggests, bridging loans are designed to ‘bridge’ the gap between two financial events.
This could be the gap between buying a property and securing long-term financing, or the gap between selling an existing property and purchasing a new one.
Common Uses for Commercial Bridging Loans
The versatility of commercial bridging loans makes them suitable for a wide array of business needs and property ventures.
- Property Acquisition: Buying commercial property at auction or securing a property before it’s sold to someone else
- Refurbishment and Development: Funding renovations or property development projects to increase value or change its use
- Business Purposes: Covering short-term cash flow needs, purchasing equipment, or expanding your business
- Refinancing: Replacing an existing loan with a bridging loan to access better terms or release equity
- Buying Out a Business Partner: Get the cash to buy out a partner quickly.
- Acquisition: Use a bridging loan to buy a business.
- Paying a Tax Bill: An unexpected tax bill will seriously disrupt your cashflow. Bridging finance can be used to pay HMRC VAT or Corporation Tax.
Semi-Commercial and Mixed-Use Properties
In addition to purely commercial properties, bridging loans can also be used for semi-commercial properties – those that combine residential and commercial elements, such as a shop with a flat above.
These loans offer a flexible solution for financing these unique properties.
Suitable Commercial Properties
Short term commercial bridge loans can be used to finance a wide range of commercial properties.
If you are buying a commercial property to rent out, then a bridging loan can be used to quickly finance the purchase while the longer-term commercial investment mortgage is being set up.
Their versatility means they can be tailored to suit various property types and business needs, including owner-occupied and investment situations.
If you’re unsure whether your property is suitable, don’t hesitate to contact us for a free consultation.
Offices
Ideal for businesses seeking to purchase or refinance office spaces, whether for their own use or as an investment.
Retail Units
Perfect for acquiring or refurbishing shops, restaurants, or other retail spaces in prime locations.
Industrial Units
Suitable for businesses in need of warehouses, factories, or other industrial premises.
Hotels and Leisure
Finance the purchase or renovation of hotels, guesthouses, or leisure facilities.
Mixed-Use Properties
Ideal for semi-commercial properties that combine residential and commercial elements, such as shops with flats above.
Land with Planning Permission
Secure funding to purchase land with approved planning permission for commercial development.
Eligibility
The accessibility of commercial bridge loans is a major advantage.
While lenders will assess your financial situation, your business and the property itself, the criteria are generally less stringent than traditional commercial mortgages.
Who Can Apply?
- Individuals
- Sole traders
- Partnerships
- Limited Companies
- Special Purpose Vehicles (SPV)
- Offshore Limited Companies
- Trusts
- Pension Funds
- Expats
- Foreign Nationals
Lenders will look at your credit history, but adverse credit doesn’t automatically disqualify you. The focus is more on the property’s value and your exit strategy.
The property you’re purchasing or using as security will be assessed to ensure it provides sufficient collateral for the loan.
If you’re applying as a business, lenders will review your financial statements to assess your company’s stability.
The most important factor is having a clear and realistic plan for repaying the loan.
How Much Can You Borrow?
The amount you can borrow with a commercial bridging loan varies depending on several factors, including the lender, the property’s value, and your financial circumstances.
However, you can typically expect to borrow anywhere from £50,000 to several million pounds.
Our brokers have specialised lenders that go to £25million and above for large-scale commercial projects.
The loan-to-value (LTV) ratio is a key factor in determining the loan amount.
Most lenders routinely offer up to 75% LTV for commercial properties, meaning you’ll need to contribute at least 25% of the property’s value as a deposit. However, lenders may offer higher LTVs, up to 80% or even 100%, if you can provide additional security or have a strong financial profile.
It’s perfectly possible to have one bridging loan secured against one, two or even three properties by way of cross-collateralization.
We have investors that offer up whole portfolios so that they can borrow quickly and competitively.
Fast funding.
First and Second Charge Commercial Bridging Loans
When it comes to bridging finance, you’ll encounter the terms “first charge” and “second charge.”
These refer to the order in which lenders can claim repayment if you’re unable to fulfil your loan obligations.
The different is whether there is already a debt formally secured on the property title.
First Charge Loans
These loans are first in the queue and take priority.
If you default, the first charge lender has the primary right to recoup their funds by selling the property used as security.
Second Charge Loans
These loans are secondary to any existing first charge loans on the property.
If you default, the second charge lender can only claim repayment after the first charge lender has been fully satisfied.
The distinction is important because it affects the risk for lenders.
First charge loans are considered less risky, so they will come with lower interest rates. Second charge loans, carrying more risk for the lender, will have higher rates.
If you already have a mortgage or another loan secured against your commercial property, any new bridging loan you take out will likely be a second charge loan. However, if the property is free of any other charges, your bridging loan will be a first charge loan.
btw – We have access to lenders that will lend on a third charge basis!
Is a Bridge Loan Different to a Commercial Mortgage?
While both commercial bridging loans and commercial mortgages are used to finance property, they serve different purposes and have distinct characteristics:
| Feature | Commercial Bridging Loan | Commercial Mortgage |
|---|---|---|
| Purpose | Short-term funding for immediate needs | Long-term financing for property purchase |
| Loan Term | Weeks to months (typically up to 36 months) | 5-25 years |
| Interest Rates | Higher due to shorter term and higher risk for lenders | Lower, as the loan is spread over a longer period with less risk |
| Approval Time | Faster, often within days or weeks | Slower, typically several weeks to months |
| Eligibility Criteria | Less stringent, focusing more on exit strategy and property value | Stricter, with emphasis on creditworthiness and income |
| Repayment | Usually a lump sum at the end of the term | Regular monthly payments of capital and interest |
When to Choose a Bridging Loan
- You need to act quickly, such as when buying at auction or securing an off-market deal.
- You have a short-term funding gap that you need to bridge.
- You have a property with potential that needs refurbishment or development before it can be refinanced with a traditional mortgage.
- You’re facing a broken property chain and need to complete a purchase quickly.
When to Choose a Commercial Mortgage
- You’re looking for a long-term financing solution for a commercial property.
- You want to spread the cost of the property purchase over a longer period.
- You prefer the stability of fixed monthly payments.
- You have a good credit history and can meet the stricter eligibility criteria.
When to Choose Commercial Development Finance
- You’re looking to develop land or buildings for commercial use
- You want help financing the purchase and construction costs
- You’re happy for the development funding to be given in regular stages
FAQ
Some common questions about bridging loans for commercial property.
One of the biggest advantages of commercial bridging loans is their speed. In many cases, you can receive funding within a few weeks, significantly faster than traditional commercial mortgages.
Commercial bridging loans can be used for various purposes, including buying property at auction, refurbishing existing properties, developing new commercial projects, paying tax bills or even covering short-term business expenses.
In addition to interest, you can expect to pay arrangement fees, valuation fees, legal fees, and potentially exit fees.
A first charge loan is the primary debt and takes priority over any other loans secured on the property, while a second charge loan is secondary. This affects the risk for lenders, which is often reflected in the interest rates.
No, they serve different purposes. Bridging loans are short-term, higher-interest loans for immediate needs, while commercial mortgages are long-term financing options with lower interest rates.
An Owner-Occupied Commercial Mortgage is used when you are buying a property that your business will use. Commercial Investment Mortgages are used to finance commercial buy to let investments.
Bridging loans can be used for various commercial properties, including offices, retail units, industrial units, hotels, HMO, mixed-use properties, and land with planning permission.
A land bridging loan can help finance the initial purchase phase of a new plot, with or without planning consent.
Planning gain finance can help fund the purchase of a pre-planning building or plot that requires planning consent.
The best way to determine if a commercial bridging loan is suitable is to book a free consultation with one of our brokers. They will discuss your specific needs and circumstances to see whether you would qualify.
