Commercial Bridging Loans

A Bridging Loan is a short-term type of loan used to ‘bridge a gap’. These loans are often used to secure finance quickly. The main reasons people choose a Bridging Loan are: buying a property from an auction, refinancing or purchasing of a property in need of refurbishment, wanting to buy a property quickly which is being sold below the market price, or releasing funds quickly to pay unexpected bills or needs (Tax, VAT or cash flow issues).

Of course, there are many other reasons that a person may need to raise finance quickly and due to the simple and quick nature of certain lenders’ application processes, a Bridging Loan can be an appealing option for borrowers.

Commercial Bridging Loans

Commercial Bridging Loans are similar to Residential Bridging Loans; Commercial Bridging Loans are used when there is a gap in financing that needs filling commercially and quickly.

It is important when it comes to Commercial Bridging Loans to remember that the overall use of the property has to be more than 40% commercial. For example, if you were buying a commercial/retail unit with a flat above it, the retail unit’s value would have to be more than 40% of the total property value.

Rates available for Commercial Bridging Finance

The rates available for these types of loans start from 0.65% to 1%. The rates are low if you borrow less Loan to Value (LTV) and more when you borrow more.

Difference between Residential Loans and Commercial Bridging

Residential and Commercial Bridging Finance share a basic format: they are short-term loans with property as security. This means that the security property is at risk of repossession if the loan is not repaid as agreed.

As you explore possible bridging finance options, you will notice that there is a clear difference between ‘residential’ and ‘commercial’ loans. Here, we will explain this difference, and help you find out which form of lending would best meet your financial needs.

• Residential Bridging Loans are categorised as ‘regulated loans’ (a loan on the property where you live or intend to live).
• Whereas Commercial Bridging refers to ‘unregulated loans’ (on a dwelling that is not your primary residence, such as a Buy-to-Let/commercial property).

Benefits of Commercial Bridging Finance

The benefits of these loans are very similar to Residential Bridging Loans. For example, when you are looking to purchase a commercial property through an auction and must complete the purchase and pay within 28 days. At this point a commercial mortgage would be almost impossible. Commercial Bridging Finance would be used to fund the purchase on time.

Who uses Commercial Bridging Finance?

As the name suggests, these Bridging Loans are secured against commercial property. They are used to secure funds quickly to purchase, or release funds from a property. Anyone who is buying a commercial property asset can use this funding facility.

When would you use it?

As mentioned before, any individual or business can use this type of finance, when you are buying a new business, commercial property, or part commercial/part residential property. In fact, they can be used for most commercial property purchases.

These purchases could include land before planning approval is given, run down commercial properties that are hard to get mortgages on in current conditions, or for funding a new small business or start-up.

These loans can also be useful when a property chain is broken, and at property auctions as well.

Just like any other Bridging Loan these loans have many uses, as long as you can provide a valid exit strategy, the funds can be used for a variety of business/commercial purposes from providing your business with extra working capital, to financing business tax liabilities or covering any short term cash-flow issues.

How to pay back these loans?

It is very important that you have a loan exit strategy. An exit strategy is the plan you have in place to repay your bridging loan when the time comes to pay it back.

This is a very vital factor when it comes to obtaining a Bridging Loan. Without a proper exit strategy any lender would be cautious to lend. It is therefore paramount to have a solid exit plan to pay your loan back on time.

The loan can be paid back in various ways. For property owners or a landlord company, the exit strategy would usually be to refinance the loan onto a Buy-to-Let Mortgage, typically after doing some renovations to make the property suitable for rental.

For commercial premises that are bought using a Commercial Bridging Loan, the exit strategy usually involves refurbishing the units then selling them or refinancing onto a Commercial Mortgage.

These loans are especially designed to be a short-term funding solution and although they are very useful when needed, they can be a lot more expensive than longer term mortgages.

It is crucial that you are able to repay on time, especially if you are building up interest that you would not otherwise be able to afford to pay. Just like any other secured loan your security is at risk of repossession if you do not keep up payments.