Commercial Bridging Loans

Find the right commercial mortgage lender for your needs and see how a broker can help you secure the best rate

Firstly, are you looking for a Bridging Loan?

Home Bridging Finance Commercial Bridging Loans
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Jon Nixon

Reviewer: Jon Nixon

Director of Distribution

Updated: April 8, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

April 8, 2024

Find out how this type of loan is different from a mortgage, the advantages and disadvantages, and how to get the best rates. We’ll explain it all in this article.

What is a commercial bridging loan?

It’s a type of short-term financing that can be used to buy commercial property or a plot of land, e.g. office space, retail units, hotels, or warehouses. Commercial bridging loans are available to individuals, partnerships, small businesses, limited companies, and large enterprises.

Bridging loans can be used as an alternative to a mortgage or to bridge the gap until you’re able to get a mortgage. Though the interest rate will usually be higher than a commercial mortgage, they do offer several benefits:

Short term

If you expect to receive capital imminently, e.g. you are waiting for the sale of another property to go through, a bridging loan might be better suited to your needs than a mortgage. They’re usually available for anything between one and 24 months although some lenders will consider up to 36 months.

Fast turnaround

If you need fast access to funds, e.g. you are buying a property at auction and don’t have time to arrange a mortgage now, a bridging loan can buy you some time. They can usually be arranged within days or weeks.

Flexible requirements

If the property you’re buying is unmortgageable, e.g. it’s derelict, a bridging loan could allow you to carry out repair work before you can secure a mortgage on it.

Or, if you don’t qualify for a mortgage, e.g. you can’t currently meet the income requirements, a bridging loan may still allow you to proceed with the property purchase.

What commercial bridge loans can be used for

These are a few of the scenarios (not all) where a bridging loan and a commercial mortgage can work in conjunction with one another.

  • Property auctions:
    If you’re buying a property at auction, a business mortgage could take too long to arrange.
    Taking out a bridging loan would give you the funds to secure the property and refinancing onto a commercial mortgage later would give you an exit strategy.
  • Unmortgagable properties:
    Let’s say you have the capital and expertise to turn an empty building into a commercial premises.
    Some lenders might turn you down for a mortgage on a building that is in disrepair, but bridging finance providers can be more flexible. You could buy the property with a bridging loan, carry out the repairs and then take out a commercial mortgage based on its increased value for the exit.
  • Chain breaks:
    Some commercial property owners might find themselves in a situation where they need to sell a property before they can buy a new one. Both deals are in motion, but the sale of their existing premises falls through, stopping the purchase in its tracks.
    A bridging loan could give you the means to keep the deal alive, and the exit strategy could be either the sale of your previous property or refinancing the funds onto a commercial mortgage on the new one.
  • You have short-term credit/cashflow problems:
    Let’s say your current credit/income situation makes you ineligible for a commercial mortgage in the immediate term, but these problems will be rectified within a matter of months. A bridging loan would allow you to close a property transaction quickly, although you will need to prove in advance that you would qualify for a commercial mortgage to serve as the exit.
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Lenders and eligibility criteria

Only a select few specialist lenders offer commercial bridging loans. Each lender usually only works with deals of a certain size and duration, so you’ll need to find one that’s a good fit for your project.

Commercial bridging loans are unregulated. This means that the Financial Conduct Authority (FCA) does not oversee them or require lenders to carry out an affordability assessment (though most lenders will do this anyway to avoid taking on too much risk).

It also means that these loans can be far more flexible and tailored to your needs. Rates are bespoke and individual, based on your needs and circumstances.

There is no set of specific eligibility criteria for commercial bridging loans, but lenders will look at the following factors before approving your application:

Exit strategy

By far the most important factor in approval is your exit strategy. If your exit strategy is to sell the property or mortgage it to repay the loan, your lender will look at how likely it is that you will be able to do that.

As part of their assessment, they might consider the location of the property and how liquid that market is, or how much renovation the property will require before you can secure a mortgage on it.

Credit history

If you have a strong exit strategy, a good credit score is not necessarily essential. However, your credit history could contribute to your approval or rejection in combination with other factors.

Business finances

If you’re applying for a commercial bridging loan as a business or limited company, you might need to submit your accounts. Lenders will assess your profitability based on your earnings before interest, tax, and amortisation (EBITDA).

Property experience

Lenders will consider your track record in developing or selling property. If you are applying for a loan for an unusually complex project, they may want to see evidence of previous success managing similar work.

How to get the best possible rate

You’ll secure the best possible rate on your commercial bridging loan if you:

  • Put down a large deposit. Bridging loans are usually available up to a loan-to-value (LTV) of 75%, but if your LTV is low, e.g. 50%, you’ll usually be offered a much lower rate.
  • Work with a bridging finance specialist. Brokers often have strong relationships with commercial bridging lenders and can use their knowledge of the best available rates to negotiate on your behalf.
  • Offer additional security. You can secure a bridging loan on the property you plan to buy, but you can also secure it on another property in your portfolio, which might get you a better rate.

How much your loan will cost

You can get a rough idea of what the repayments on your commercial bridging loan will look like by using our calculator below.

Bridging Loan Calculator

You can use our bridging loan calculator to calculate your LTV (Loan-to-Value) ratio and get an estimate of your monthly finance costs as well as the total interest you will pay.

How much you're borrowing
£
Number of months you're taking the loan over
months
This is the monthly interest rate
%
Loan amount must be less than property value

Your Results:

Loan-to-value:

Total monthly payment:

Total interest:

Now that you have a clearer idea of how much your loan will cost, you should speak to a bridging finance broker to explore all of your options and boost your chances of getting the best deal possible.

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Commercial bridging mortgages

A commercial bridging mortgage is an agreement where a bridging loan is used as a means of securing a commercial mortgage at the end of the term. The bridging loan would tide the borrower over until they are in a position to qualify for a commercial mortgage.

You might choose one of these arrangements if you are ineligible for a business mortgage in the short term. Perhaps you have bad credit that will be settled in a few months or are due to recoup a significant amount of money from an investment in the near future.

A commercial bridging loan could help you secure your property in the immediate term, buying you time to arrange the mortgage later on.

You could use the same lender for the bridging loan and the commercial mortgage, or different ones if the rates available work out more favourable that way.

Other things to consider

Before you apply, you should be aware of the following considerations and risks:

  • Interest rates for this type of financing can be very high
  • There are other potential costs involved, including arrangement fees, exit fees, and valuation fees
  • If your exit strategy fails or is delayed, the property you have secured the loan on could be repossessed
  • To avoid this, you might look at refinancing the loan, but there can be high costs associated with this
  • Because commercial bridging loans are unregulated, you don’t have FCA protection

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Speak to an expert in commercial bridging loans

Because this type of financing is so specialist, it’s best dealt with through an experienced bridging finance broker with extensive knowledge of the market and strong relationships with numerous lenders. If you are hoping to later secure a commercial mortgage, it’s sensible to choose a broker who can also help you at that stage.

Naturally, brokers with this level of experience are few and far between, but we work with a number of them. By using our free broker-matching service you can be sure that you’ve been paired with someone with the exact skills and expertise that you need.

To find your perfect match and start with a free, no-obligation chat with a commercial bridging loan expert, just call us today on 0808 189 2301 or make an enquiry online

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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