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Home » Bridging Loans » Types of Bridging Loan » Commercial Bridging Loans

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What is a commercial bridging loan?

Commercial bridging loans are, as their name suggests, bridging finance which is secured against commercial property. They are used to secure funds quickly to purchase, or release funds from a property.

For instance, if you are looking to purchase a commercial property under auction conditions and must complete in 28 days, a commercial mortgage would be risky. A commercial bridging loan would be used to fund the purchase on time to protect any deposit paid.

Read on below to find out more.

Criteria

Below are the main criteria points to consider when taking out commercial bridging finance.

1 Up to 75% Loan to Value (or 100% with additional security).
2 Property in a poor state of repair considered.
3 Rates from 0.55% per month for semi-commercial
4 Loans from £25,000 with no maximum loan size.
5 Borrow from 1 month up to 24 months.
6 Any security considered.
7 Interest can be rolled into the loan.
8 Loans with no early repayment charges available.
9 We will consider any exit route.
10 Refurbishment or conversion accepted.
11 Adverse credit accepted.
12 Loans available throughout the UK.

How much can I borrow?

Commercial bridging loans are usually available up to a maximum of 75% of the property’s value. Our minimum loan is only £25,000 and we don’t have a strict maximum, meaning we can fund practically any loan.

When looking to maximise borrowing, the interest must be considered. When adding the interest into the loan, this is usually deducted upfront, which means you will receive less funds upfront than you would if paying monthly.

How much will it cost?

Commercial bridging lenders tend to price each loan on risk. They will look at the type of property, location and you as the client. The best rates usually start at around 0.65% per month for full commercial property and 0.55% for semi-commercial.

As a guide, an interest rate of 0.9% 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 1% – 1.5% per month.

Most lenders charge an arrangement fee, usually 2% of the loan amount. In some cases, they also charge an exit fee. This tends to be 1% of the loan amount, or one month’s interest. These fees can usually be added to the loan.

How long do they take to complete?

We can complete commercial bridging loans the same day, if all information, including the valuation and legal pack is completed and satisfactory.

Generally, it is worth allowing between five days and 3 weeks to complete to allow for any unforeseen delays.

What is the role of a broker?

A broker will search for the best deal for you and will manage the application process from start to finish. There are a number of benefits to working with a reputable broker:-

  • A good broker will ensure that you exit strategy is solid and realistic.
  • Many bridging finance lenders will only work with brokers, meaning they can’t be accessed directly. As such, a broker may give you a wider choice of lenders.
  • They will usually save you money.
  • We act for you, protecting your best interests at all times.

Although a broker may find you a cheaper rate, it’s important that you don’t then lose any savings made by paying large fees. Many brokers charge a fee for their service, often 1-1.5% of the loan amount.

When adding this fee to the loan, it’s important to remember that you’ll also pay interest on the fee, meaning you’ll pay more overall.

We don’t charge broker fees for bridging loans.

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:

  • Is a bridging loan the best 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.

Some of these points are explained in more detail below.

What types of property can you lend against?

We can offer this type of finance against almost any security. Our commercial options are often used to fund:

  • Offices
  • Professional practices
  • Care homes
  • Pubs and bars
  • Restaurants
  • Hotels
  • Guest houses
  • Retail premises
  • Business parks
  • Warehouses
  • Factories
  • Large HMOs
  • Semi-commercial units
  • Places of worship

How should I choose the most suitable product?

The total cost over the term of the loan is the best indicator of the best product. Once you have a reasonable understanding of the total cost of borrowing, there are further considerations.

Firstly, as a bridging loan is usually time sensitive, the speed of each lender is an important point. You can find this out by asking each funder upfront.

Once you’re satisfied with these two issues, the final consideration is any potential default interest charges.

Some lenders charge very high rates in the event of default, which can be financially devastating. Where possible, always avoid lenders who charge high default interest charges.

What are the alternatives to commercial bridging loans?

As mentioned above, commercial mortgages are a lower cost alternative to bridging loans for longer term borrowing.

Although this is the case, it 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.

How can I secure a better deal?

There are a few tips to secure a better deal on your commercial bridging loan. 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

What term can you offer?

We can offer terms from one month up to three years, depending on what you need. Most of our loans are between 1-12 months.

For loans over 12 months, it may work out cheaper to consider other products, such as commercial mortgages. In many cases, they are likely to save you money, although they do come with stricter lending criteria.

How is the interest paid and what happens if I repay the loan early?

In most cases you can choose between paying the interest monthly or adding it to the loan. Generally speaking, the lender will allow you to choose the option that you prefer, although not every lender will allow you to make the monthly payments.

When choosing to make the monthly payments, it’s important that the loan is affordable. The lender will usually want to see proof of income to confirm this. Where rental income from the security property will be used to make the payments, the lender will generally require a copy of the lease.

When adding interest to the loan rather than making monthly payments, the interest will be added for the full term. Should you repay the loan early, you will usually be refunded any unused interest, meaning you only pay for what you borrow.

There are usually no penalties for repaying a loan early.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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