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Commercial Bridging Loans

Looking for an alternative to a commercial mortgage? Find out more about bridging loans for commercial land and properties.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 20, 2022

If you’re looking for short-term financing for a commercial property project with a relatively quick and straightforward application process, a commercial bridging loan could be the ideal solution.

But, before you apply, you’ll need to know 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.

Topics we’ll cover are…

What is a commercial bridging loan?

It’s a type of short-term financing that can be used to buy commercial property, 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, bridging loans 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.

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.

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Lenders and rates

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.

How to get the best 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.

Eligibility

There is not a 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.

Other things to consider

Before you apply for a commercial bridging loan, 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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Finding a commercial bridging finance broker

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 niche 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 OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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