What is a Commercial Bridging Loan?

There are many different reasons that a property developer, landlord or investor might choose a commercial bridging loan instead of a longer-term finance facility. We’ll discuss this in more detail below, but the main distinguishing feature is that these are short term loans, usually used to enable the purchase, construction, or redevelopment of commercial properties. 

In order to qualify for this type of loan, the property that you are buying typically must be more than 40% commercial. As an example, a retail unit with a residential property above would only qualify if the retail unit’s value was more than 40% of the total value of the property.

When Would You Use A Commercial Bridging Loan

So what’s a bridge loan usually used for & on what occasions is a commercial bridging loan more appropriate over other types of finance? The answer to this question is in large part down to the two key factors that differentiate them from other sources of funds. 

The first factor that makes people consider commercial bridging finance is the speed at which the funds can be released. From enquiry to decision, this can be as little as 24 hours if the appropriate documentation is supplied from the outset.

The other key attraction of a commercial bridging loan is that they are secured on the property itself, meaning those with poor or no credit history are not stopped from accessing funds they need in order to realise an opportunity.

Commercial bridging finance is commonly used when buying a new business, commercial property, or part commercial property. If your landlord offers you the opportunity to purchase your property, but needs to complete quickly, then a commercial bridging loan could secure the funds in the timescale you need.

The use of commercial bridge loans is not solely restricted to the purchase of commercial property though - they are also often used where other short term funds are needed for expenditure on the property itself.

Other uses could include providing funds for refurbishing the property, or covering the costs required for a permitted development for example. It is important to note that development finance may be more appropriate if the projects you are undertaking are long term in nature, as commercial bridging loans typically are only offered for terms no longer than 12 - 24 months. 

Buying commercial properties at auction is also substantially easier with the use of a commercial bridging loan. Auction conditions mean that purchases must be completed within 28 days. For typical commercial mortgages this timeframe is out of the question, but with commercial bridging finance, buyers are able to go into the auction with an agreement that allows them to bid in confidence.

Once a purchase has completed, you can arrange a traditional mortgage so that you can pay back the bridging lender within the timeframe of the loan.

Another example of their use is that startups & small businesses can struggle to get funding, as they don’t have the financial history or securable assets that would make them a good risk for traditional lenders. In these cases a bridge loan can be used to raise capital to buy stock or equipment, or to fund a time-sensitive marketing drive for example.

The key point to remember about a commercial bridging loan is that it is essentially a secured, short term finance facility, & even though they are usually associated with property development or redevelopment, they are by no means limited to this. 

If you need secured funds for...

• Developing or buying property
• Renovating or restoring property
• Expansion plans
• Paying bills
• Covering a cash flow shortfall
• … & more

...then commercial bridge loans are an option you should consider.

What Types of Assets Can Be Used As Security With Commercial Property Loans

A commercial bridging loan can be used to quickly purchase the following types of property:

• Offices
• Professional practices such as GP surgeries
• Restaurants, pubs & bars
• Hotels
• Care homes
• Shops & other retail premises
• Business parks
• Warehouses & factories
• Places of worship

Property that has a residential element can be considered also, dependent at what usage level this is at. Land, with certain caveats, can also be used as security.

How Much Do Commercial Bridging Loans Cost

The costs for a commercial bridging loan are slightly higher than you would find for other types of lending, owing to the short-term nature of the finance. 

In September 2019, the average monthly interest rate for a bridging loan was 0.75%, ranging from 0.43% to 1.5%. This is equivalent to 5.16% per year up to 18% per year.

Bridging lenders tend to charge an arrangement fee of around 2%, & there may be other fees to pay, depending on your lender. For this reason, it is important that you work with a broker who understands your needs & budget & can help you to find the right lender & commercial property loan partner for you.

We have rates that start at 0.44% & we can give you an agreement in principle on the same day. Complete our quick & easy commercial bridging loan calculator & get a quote now.

Key Points To Consider

As long as you use a broker who knows what they are doing, & partners you with a lender that is appropriate for your situation & budget, you should have no more issues with a commercial bridging loan than you would with any other financial product. 

As a jumping off point, it may be worthwhile asking yourself the following questions, before you begin the process of applying for a commercial bridging loan:

• Should I be choosing a commercial mortgage or a bridging loan? What are the circumstances of my purchase that have led me to this decision?
• What is my exit plan? (This refers to how you are going to pay back the loan. For landlords it would be renting out the unit, for example)
• What will I do if my exit plan fails?
• Do I want to pay the interest on the loan monthly, or have it ‘rolled up’ to pay at the end of the loan term?
• How much is the loan going to cost me? (Make sure that you include all fees, including interest)
• Is the loan term long enough for me to fulfil my exit strategy?
• Can I repay the loan early? Will the lender penalise me for doing so, or will I be able to pay less interest?

We're a comparison specialist, working with one of the UK’s leading commercial bridging brokers, to help you to find the right bridging loan for you & your project. 

We have helped businesses like yours secure over £200m in financing over the last 12 months, so if the property you wish to buy or renovate is commercial & you need to know what the best bridging loans are then call us on 01202 612934 or complete a Quick Enquiry today.