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Commercial Mortgage Bridge Loans

In the market for commercial mortgage bridging finance? Get the right advice here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: December 7, 2021

We hear from many customers who are interested in commercial mortgage bridge loans and have helped hundreds of investors achieve their business goals with these products.

Some of them had even been turned down by commercial lenders at least once before due to things like adverse credit history, a lack of industry experience and other factors.

We also have standalone articles on commercial mortgages and bridging loans.

What is a commercial mortgage bridging loan?

‘Commercial mortgage bridge loan’ is a term that might be used when a bridging loan and a business mortgage are used in conjunction with one another to purchase a commercial property or a plot of land.

They are essentially two separate products, but there are scenarios where they need to be offered together, with the bridge serving as short-term finance to complete an initial purchase and the mortgage providing longer-term funding.

How does a commercial bridging mortgage loan work?

Bridging loans are offered on a short-term, interest-only basis.

They are usually much quicker to arrange than a mortgage and can be more flexible.

Although bridging finance is commonly offered at a higher interest rate, it can help out borrowers in situations where a mortgage cannot, most likely because it would take too long to arrange or a mortgage lender has turned them down for any number of reasons.

To get a bridging loan, the applicant needs to evidence a strong exit strategy (i.e. a means of paying the debt at the end of the term) and this is where a commercial mortgage comes in.

In the context of commercial mortgage bridge loan investments, the bridging loan can be used to secure a business property or plot of land quickly and the borrower could later refinance the funds onto a commercial mortgage to serve as the exit strategy.

How long are commercial bridge loans?

They are usually a short-term solution, with most commercial lenders expecting them to be settled within 6-12 months.

However, some will stretch to 18-24 months and a minority 36 months.

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Why get a commercial bridge mortgage?

There are a number of scenarios where you would need to take out a bridging loan before you can get a commercial mortgage, and they’re largely situations where timing is of the essence or where a business mortgage lender is likely to turn you down in the immediate term.

What commercial bridge loans can be used for

  • Property auctions:
    If you’re buying a fixer-upper commercial property under the hammer, a business mortgage could take too long to arrange to seal the deal.
    Taking out a bridging loan first 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 a shell of a 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.

These are merely a few of the scenarios where a bridging loan and a commercial mortgage can work in conjunction with one another.

Commercial bridge mortgage eligibility criteria

There are lenders who may be willing to offer you both the ‘bridge’ and ‘mortgage’ aspects of a commercial bridge mortgage loan, although using separate providers is not unheard of. In any case, to qualify you will need to meet the eligibility criteria for bridging finance and a commercial mortgage. This is why you should seek specialist advice first. The commercial mortgage brokers we work with know exactly which lenders are best positioned to offer these products.

Both of these products are usually offered on a case-by-case basis, but most lenders prefer customers to have the following…

  • A strong exit strategy for the bridging loan:
    In the case of a commercial bridge mortgage loan, the exit strategy would usually be to refinance onto a commercial mortgage, so if you’re using separate lenders for the two products, the bridging provider will want to see evidence that the mortgage loan is lined up.
  • Industry experience:
    Although there are commercial mortgages and bridging loans for first-time investors and start-ups, having a strong track record in the relevant industry should help you convince the lender you can achieve your plans.
  • Clean credit:
    While there are commercial mortgage lenders and bridging providers who specialise in customers with various types of adverse, having clean credit will usually help convince the lender you’re low risk.
  • A healthy deposit/good security:
    Bridging loans usually require a deposit of 30%, while commercial mortgages can require anything between 20% and 40% depending on the level of risk. Putting down more than the minimum can lower the level of risk, while deals with a 100% loan to value (LTV) ratio are possible to obtain if you’re in a position to put down extra security, e.g. another property or asset.
  • Profitability:
    This is essential for the commercial mortgage part. The lender could carry out an assessment of the earnings before interest, tax, depreciation and amortisation (EBITDA) of your business (or the one you’re buying) and may ask to see a business plan with future projections so they know the mortgage is affordable.

If you don’t meet all of the above criteria down to a tee, there’s no need to panic. Both bridging loans and commercial mortgages are usually assessed on a case-by-case basis, so with the help of a whole-of-market broker, it may be possible to find a specialist lender who will offer you a lifeline even if others have turned you down.

What is the minimum investment for a commercial bridge mortgage?

Most commercial mortgage lenders and bridging providers have minimum loan amounts. For bridging, some draw the line at £50,000, others won’t let you borrow less than £30,000 and a minority will offer loans that are even lower than this.

For the commercial mortgage aspect of the deal, you might struggle to find a deal worth less than £26,000, as anything below that would usually be classed as a business loan.

Are commercial bridge mortgages safe?

Commercial mortgages and bridging loans are usually offered on an unregulated basis, but that doesn’t mean the market is the financial equivalent of the wild west.

‘Unregulated’ is simply the term used for business lending, which needs to be bespoke and tailored to the individual. There are high standards of self-regulation in this market sector.

However, there are potential pitfalls you should be aware of…

Commercial bridge mortgage loan risks

  • There is a repossession risk if your exit doesn’t pay out within the agreed timeframe.
  • Refinancing a bridge is possible in the event of delays, but this will only happen at the lender’s discretion and many charge hefty fees for this.
  • Most of these deals are not regulated by the Financial Conduct Authority (FCA) so it may be more difficult to get compensation if anything goes wrong.
  • Interest rates on bridging loans can be higher than other financial products, which adds significantly to the overall cost.

If you’re concerned about any of the above, get in touch and the advisors we work with will assess the level of risk involved in the deal you’re pursuing and suggest ways to minimise it. There’s even a chance that most of the above will not impact on your transaction.

How to get a commercial bridge mortgage

Applying through a whole-of-market broker is the best way to pursue a complex deal like this. Not only will it save you the legwork of approaching multiple bridging and mortgage lenders, you can rest assured that all of the best deals you qualify for will be accessible.

The brokers we work with are whole-of-market and they can offer bespoke advice on bridging finance and commercial mortgages, as well as introduce you to the lenders best positioned to offer you a favourable deal on these products.

Speak to an expert on commercial mortgages and bridge loans

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 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 charge a fee and there’s absolutely no obligation or marks on your credit rating.

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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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