Commercial Bridging Loans
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
What is a commercial bridging loan?
Commercial bridging loans are, as their name suggests, bridging loans which are secured against commercial property. They are used to secure funds quickly to fund commercial property purchases or release funds from a commercial property.
How do commercial bridging loans work?
They are short-term, interest only loans which are usually arranged for up to 18 months (although some lenders offer longer terms).
During the term of the loan, interest is usually rolled into the loan and repaid at the end of term, or sooner if the loan is repaid early. As such, there are usually no monthly payments to make. This is similar to the way interest is handled using a residential bridging loan or development finance.
When should I use commercial bridging finance?
They are used when funding is needed to secure a commercial property, often in situations where a commercial mortgage wouldn’t be appropriate. This is usually either related to how quickly the funds are needed, or because a commercial mortgage wouldn’t be available in current circumstances.
The main reasons for taking commercial bridging loans are buying at auction, in other conditions where completion must take place quickly, or where refurbishment works will be undertaken on the property. Other reasons include funding a property while it is sold, funding for new businesses and using a bridging loan to repay adverse credit prior to a term loan being taken.
They are often used as bridging loans for small businesses to purchase or release equity from their business premises.
Key product features
Key features
| Max LTV | Up to 75% |
| Interest rate | From 0.65%per month |
| Charge types | 1st, 2nd & 3rd considered |
| Term | 1-36 months (maximum 12 months for regulated loans) |
| Interest type | Added to the loan, deducted or serviced |
| Completion timescale | 5 days – 3 weeks |
Criteria
- Commercial, semi-commercial property or land acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
- Loans from £25,000 with no upper limit
What property types can a commercial bridging loan be used for?
Our commercial bridging loan products are often used to fund:
- Offices, professional practices
- Pubs, bars, and restaurants
- Hotels, guest houses and B&Bs
- Retail units and business parks
- Warehouses, factories and industrial units
- Large HMOs/unusual residential investments
- Mixed use property
- Care homes
- Places of worship
- Commercial premises
We can look at properties that are ready to occupy, those in need of refurbishment and even property that will be converted or developed.
Who is eligible for a commercial bridging loan?
We’re able to offer loans to those looking to borrow in their personal name, through a partnership, Limited company, offshore limited companies, trusts and pension funds. Lending can be to UK residents, expats and foreign nationals. In addition, adverse credit is not usually an issue.
How much can I borrow using commercial bridging loans?
Our minimum loan is only £25,000 and we don’t have a strict maximum, meaning we can fund practically any loan.
Commercial bridging loans are usually available up to a maximum of 75% of the property’s value. The maximum loan available to a borrower depends on the type of property, its location, the market for such properties and your chosen exit strategy. Lenders ultimately want to reduce their own risk, and as such will only offer the highest LTVs where safe to do so.
If your exit strategy is the sale of your property, then the lender will want to understand the demand for such properties and how quickly it is likely to sell. Where there is a risk that a buyer may not be found during the term of the loan, you are likely to be offered a lower LTV.
Where the exit is a refinance to a commercial mortgage, the lender will want to ensure that your new mortgage will be achievable. They will check the likely maximum loan on a commercial mortgage and won’t want to lend more than that, unless you have a way of covering the difference.
What commercial bridging loan rates should I expect to pay?
Commercial bridging lenders tend to price each loan on risk. The best rates usually start at around 0.65% per month. As a guide, an interest rate of 0.75% per month is a good benchmark. For a riskier application, such as an unusual property or a client with heavy adverse credit, rates will be around 0.95% – 1.5% per month. The lowest rates tend to be offered on applications at lower loan to values. Lenders take a tiered approach to pricing their loans, with the lowest rates being offered at 50% LTV and below.
On top of the interest charges, when taking out commercial bridging loans, a number of fees must be paid. They are:
Lender arrangement fee – These fees are charged by the lender and can usually be added to the loan. Typically, you can expect this fee to be 1-2% of the loan amount.
Lender exit fee – Thankfully, these fees are becoming less common, but some lenders charge an exit fee when the loan is repaid. Where this is the case, it is usually equal to 1 month’s interest costs.
Broker fees – Most brokers charge a fee for arranging a commercial bridging loan, often 1-1.5% of the loan amount. We don’t charge a broker fee for our service.
Valuation fee – This fee is payable to a chartered surveyor and is used to assess the security property. It is paid early in the application process and the cost depends on the property value, type and location.
Legal fees – You’re usually expected to pay both your own and the lenders legal costs. This fee is usually payable in two parts. The first prior to legal work beginning, and the balance on completion.
How can I get a better deal?
There are a few tips to secure a better deal on commercial bridging loans. They are:
- Increase the amount of deposit you’re putting into the deal, thereby reducing the loan to value
- Offer additional security over another property
- Pay off any adverse credit you may have
Key points to consider before taking out a commercial bridging loan
Taking out bridging finance is a big decision and it needs to be handled correctly. As such, you should never rush when making your decision, even if you need to complete quickly.
There are some key considerations, which if made upfront, can save a lot of problems further down the line. They are:
- Should I arrange commercial bridging finance or is there a better option for me?
- Could I be better served with a commercial mortgage?
- How will I repay the loan?
- Is my exit plan reasonable and what happens if it fails?
- Should I look to pay the interest monthly, or allow it to compound monthly onto the loan?
In addition, you should consider the following about any product that you’re looking to take:
- What is the total cost of the loan? This should include interest, fees and other charges.
- Will the term offered be sufficient for my exit strategy to come to fruition?
- How does the lender handle defaults? Some lenders charge extremely high default interest rates.
- What happens if you repay the loan early? Do you still have to pay all of the interest?
When using a broker, they should be able to tell you the answers to these questions for any option presented.
What information will I need to provide when applying for a commercial bridging loan?
When looking to apply, you will usually be asked for the following information:
- Details about yourself
- Details about the property
- What your exit strategy is (and proof that it is viable, where appropriate)
- Copies of leases (where the property is let)
How quickly can I get a commercial bridge loan?
The commercial bridging loan application process usually takes 10-14 days to complete and for you to receive your loan. We can complete loans for commercial properties the same day, if all information, including the valuation and legal pack is completed and satisfactory.
Who are the best commercial bridging loan lenders?
They are usually offered by specialist lenders, as this is a fairly niche area of the bridging market that not all lenders choose to take part in. Finding a good lender can be tricky, as even those lenders who do offer finance against commercial properties have greatly differing lending appetites.
The decision must be made whether to work with a broker, and if so, which one. Some brokers charge large fees for their service, which add to your costs – whereas others, like us, don’t charge a fee. An experienced broker will be able to speed up the process and negotiate with the lender on your behalf.
FAQs
Are all commercial bridging non-regulated?
For commercial property, every loan is non-regulated. For semi-commercial property, your loan may be regulated if you live in the property and are borrowing in your personal name. This depends on how much of the property you occupy as a main residence.
When above 40% of the total internal area is your main residence, your loan will be FCA regulated.
Can I pay the interest monthly?
Yes, where affordable, it’s fine to pay the interest monthly rather than adding it to the loan.
Where this is to be done, proof of income will be required to prove affordability.
What are the alternatives to commercial bridging loans?
Commercial mortgages are a lower cost alternative to bridging loans for longer term borrowing.
Although this is the case, taking out a commercial mortgage instead of bridging finance isn’t always possible – either because of time constraints or lender criteria.
Why are the interest rates higher than those for residential properties?
Lenders price applications based on the perceived risk presented to them. As commercial property tends to be less liquid than residential, the rates charged are higher on commercial bridging finance.
For higher quality, in demand properties, you’re likely to secure the best interest rates.
Can a business get a bridging loan?
Yes, a business can get a bridging loan. They can take them to finance a property that they will occupy as their trading premises, or as an investment property. Both trading businesses and SPVs can borrow using this type of finance.