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Bridging Loans for Businesses

Can I get a commercial bridging loan for my business? Yes! And this article will point you in the right direction.

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By Pete Mugleston   Mortgage Advisor

Last updated: 23rd November 2018 *

We get many enquiries from customers who want to know if there are bridging loans for businesses, and the good news is that there are.

There are lenders out there who specialise in commercial bridging finance, and if you’re in the market for it, this article is for you.

The following topics are covered in our guide to commercial bridging loans…


What is a commercial bridging loan?

A commercial bridging loan is exactly as the name suggests: bridging finance for borrowers who wish to use the funds for commercial purposes. This may include the purchase of an investment property or securing new offices for a growing company.

A bridging loan is classed as commercial if the property or land it is being used to purchase is  more than 40% commercial. For example, if it’s a block of flats with ground-floor shops, the retail units need to make up over 40% of the property’s total floor space.


How is interest charged on a commercial bridging loan?

Like standard buy to let mortgages, business bridging finance is usually offered on an interest only basis. Some lenders will allow you to pay it off monthly and settle the loan amount at the end of the term, while others will offer you a rolled-up deal, where the monthly interest is compounded, added to the loan amount and payable at the end.

There’s also the possibility of taking out a ‘deferred’ agreement where you ‘borrow’ the interest for a set period. The total amount due would be calculated at the beginning based on the length of the term and everything would be payable at the end.

To get a bridging loan, you will need an exit strategy (i.e. a plan for paying off the loan at the end of term) and with commercial property, it will either be the sale of the property or a commercial remortgage - we will cover exit strategies in more depth later in this article.


What type of lender do I need for a business bridging loan?

For commercial bridge loans, you will need a specific type of lender. They can be broadly split into two types: regulated and unregulated, and it’s the latter you want / you’ll get.

Regulated bridging loans are strictly for residential purposes, i.e. for properties that the borrower either lives in or is planning to live in. They are overseen by the Financial Conduct Authority (FCA), giving the borrower extra protection against bad advice and mis-selling, among other things.

Unregulated bridging loans, meanwhile, are not as dubious as they sound. This is simply the term used for bridging finance for business investments. Unregulated bridging lenders can offer the extra flexibility commercial borrowers need as well as the right expertise.


Why do I need an unregulated lender for business bridging finance?

Commercial borrowing needs to be bespoke and flexible. For instance, if you’re planning to rent out a commercial property, an unregulated bridging loan would allow you to borrow based on its rental potential, rather than your income, which may be significantly less.

The advisors we work with have access to all of the commercial bridge loan lenders on the market, and they can connect you with the right one based on your circumstances and needs, so make and enquiry to get the ball rolling on your bridging finance application.


How much deposit do I need for a commercial bridging loan?

Most commercial bridging loans are offered with the same loan to value (LTV) as residential bridging finance - between 70% and 75% of the gross loan amount (the loan plus the interest) is common for straightforward deals. This means you will need a deposit of at least 30-35% of the property’s value to get a business bridging loan.

Higher-risk deals often come with capped LTV, with some lenders only willing to offer 50-60% if they feel the exit strategy is uncertain or your plans for the funds unachievable.

However, it is possible to get a commercial bridging loan with higher LTV (up to 100%) but this will usually mean putting up extra properties/assets you own as security. This comes with the risk of multiple repossessions if you can’t pay up, as well as extra valuation fees.


How long are the terms for a commercial bridge loan?

All bridging loans are designed to be short term and the lender will usually want them repaid within 12 months or less. Longer terms do exist, but the lengthiest you’re likely to find anywhere is 36 months. Keep in mind though, the longer term you take, the more you will have to pay back at the end due to the monthly interest.


Getting the best rates on business bridge loan financing

Bridging applications are assessed on a case-by-case basis and eligibility is often subjective. However, lenders tend to reserve the best rates for borrowers with the following…

  • A strong exit strategy:
    Most bridging loan applications are approved and rejected based on the strength of the exit strategy, and the more likely yours is to pay out, the more comfortable the lender will be offering you favourable rates. They will look at the sellability/mortgageability of the property and expect you to evidence that it will raise the required amount at the end of term. If it’s a development project, the lender will assess whether there is any possibility of delays or setbacks, and will look closely at whether you’re capable of achieving your plans.
  • Clean credit:
    Credit issues are usually only an issue to bridging lenders if they put the exit strategy at risk. This could well be the case if the exit is a remortgage, but having adverse doesn’t necessarily rule out your chances of landing a commercial bridging loan. That said, clean credit will nearly always help you end up on the most favourable rates, as it will help convince the lender that you’re low risk.
  • Experience in property:
    Lack of experience in commercial property isn’t necessarily a deal-breaker for bridging lenders. Some will lend to first-time investors if they have a water-tight exit strategy - but having experience is always a bonus when it comes to landing the best rates. Indeed, some lenders will insist on experience if it’s a complex development project and may request evidence of past undertakings.
  • A healthy deposit:
    Most bridging loan lenders will insist on a deposit of at least 30%, but putting down more if you’re able to can further minimise the risk. As is the case with mortgages, putting down up to 40% may get you more favourable rates.
  • A good security property:
    Bridging loans can be secured against either a property you own or one you’re buying. The more sellable/mortgageable your security property, the more likely to the lender is to offer their best rates. Expect them to look at factors such as the property’s location and whether there are any variables which might put off buyers, such as leaseholds and non-standard construction.


Do I need a business plan to get a commercial bridging loan?

Some commercial bridging finance lenders will request a business plan. Underwriters may want to see one if there is a commercial element to a property you’re buying as they will likely be keen to assess the business to make sure the investment is viable. Often this depends on the experience of the borrower and track record of any previous projects.


Are there corporate bridge loans for all types of commercial property?

Some bridging lenders consider certain types of commercial property too high risk and impose restrictions on them. For example, there are lenders who will cap LTV for restaurants and petrol stations, and others who won’t offer loans for them at all.

Bridging loans for hotels are also available from some, but not all lenders, and they are treated no differently to other commercial properties. As with any commercial property, you may be asked to produce a business plan for your hotel and the provider will want the exit to be water-tight.

With properties that are considered the highest risk, certain lenders may charge higher rates and fees, and request extra solicitor’s checks to make sure the deal is viable.


Unmortgageable properties

The flexibility of unregulated bridging finance providers enables them to offer loans for properties that a commercial mortgage lender might feel is ‘unmortgagable’. This could be because it is a shell of a building or has not toilet or kitchen facilities.

If you have the means to renovate a dilapidated building, either to sell off afterwards or use as a commercial base, you could use a bridging loan to buy the property. Your exit strategy could either be a commercial remortgage or the sale of the property.


Small business bridge loans

Technically speaking, businesses of all sizes can apply for commercial bridging loans, and the rules, rates and eligibility criteria are generally no different for small organisations.

It’s actually larger and more complex companies that are handled slightly differently. The underwriting can be more stringent and in-depth.


What about commercial bridging loans for Limited Companies?

They’re readily available, too. The rates you’ll receive if you trade as a Limited Company are usually no different than those handed to other types of commercial borrower.

Some lenders will request a personal guarantee from the company directors and may prefer it if your Ltd is a special purpose vehicle (SPV). It may boost your choice of lenders if this is the case, but it’s by no means impossible to find a bridge loan as a non-SPV.


Can I get a corporate bridge loan on a second charge basis?

Only a small number of bridge finance lenders offer second charge loans, but the interest rates are higher for these deals. What’s more, you may find it tough to get one if you have any bad credit against your name. Maximum LTV is likely to be no more than 70% of the gross loan amount, including the first charge balance.

A handful of non-regulated bridge lenders may also consider offering third charge loans, but it would have to be an exceptionally lucrative deal with a water-tight exit to justify the risk.


Speak to an expert commercial bridging finance broker

For further information about finding a bridging finance broker and get the ball rolling on your application for one, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  - We don’t change a fee and there’s no obligation or marks on your credit rating.

Updated: 23rd November 2018
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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 info 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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