What Is A Commercial Bridging Loan?
Commercial bridging loans or commercial bridging finance is a type of short-term loan providing fast funds. A commercial bridging loan is secured on a commercial or semi-commercial property with the commercial element being over 40%. There are a wide range of properties classed as commercial, they may include retail shops, industrial units, hotels or office blocks. Semi-commercial property could, for example, be a retail shop with living accommodation above.
Commercial bridging finance can be based on a 1st, 2nd or 3rd charge, 1st charges will obtain a lower rate of interest and 2nd and 3rd charges, higher. These loans can be for an owner occupied property, meaning you trade from the premises or for commercial investment.
How Much Can I Borrow?
Generally, commercial bridging lenders look at each application on a case by case basis depending on the property itself, location, client profile and exit route. Typically you can borrow up to 65% of the value of the property value or purchase price, whichever is lower. Some lenders do offer a 70%-75% loan to value ratio (LTV) however to obtain the best commercial bridging rates, LTV’s need to be kept lower.
There are lenders who will lend against the open market value (OMV) even if you are buying under value. An example of this could be a purchase price of £75,000 but the OMV is £100,000, a lender may then lend you £65,000 towards the purchase. In this instance, the OMV must be verified by a qualified surveyor.
If you need 100% bridging finance, some lenders will look to use extra security and will lend up to 100% of the purchase price. We also have lenders that lend against other assets such as vehicles, jewellery or machinery etc.
How Much Will It Cost?
Commercial bridging lenders tend price each loan on risk, they will look at the type of property, location and you as the client. The best commercial bridging rates usually start at around 0.65% per month however rates tend to start at around 0.75%. As a guide, an interest rate of 1% per month is a good benchmark. For a riskier deal, such as an unusual property or a client with heavy adverse credit, rates will be around 1% – 1.75% per month.
Most commercial bridging finance lenders charge a lender fee, this will range from 1% – 3% of the loan amount. In some cases lenders also charge an exit fee, this tends to be 1% of the loan amount, these fees can be added to the loan.
How Long Do They Take To Complete?
This all depends on the overall deal, access to an experienced, whole of market commercial bridging broker is advantageous if funds are required quickly. A straightforward commercial bridging loan can complete in a matter of days whereas something more complex could take weeks. If the monthly interest is ‘rolled up’ and the exit route is sale of property this is deemed fairly straightforward.
If you wish to pay the interest monthly or want to clear the bridge with a commercial refinance, this would take longer. If you opt to pay the loan monthly, as part of responsible lending the lender would need to see evidence of your income to ensure this is affordable. If the exit route is a refinance, the lender may need a commercial mortgage offer in principle before they make a loan offer.
If you require commercial bridging auction finance, we would make certain that the auction deadline could be met. If there is a strict completion deadline when applying for a commercial bridge, it is strongly advisable that you have a solicitor that is experienced with dealing with such matters.
Can I Borrow Against Land?
Yes, depending on what the land is and what it is used for we can usually arrange a loan of around 65% of the value regardless of whether it has planning permission. Land bridging finance rates are around 0.9% – 1.35% per month.
What Are Non-Status Bridging Loans?
A non-status bridging loan lender will lend without the need for credit checks or income proof. If you have a poorer credit file or little to no evidence of income this could be the ideal product. As a whole of market commercial bridging finance broker, we have access to true non-status commercial bridging lenders.
What Can The Funds Be Used For?
There are a number of uses for commercial bridging loans, here are a few examples:-
- Cash flow
- Fast funds
- Auction purchase
- Buying undervalue
- Unmortgageable properties
- Conversion or refurbishment
- Paying an HMRC bill (tax, VAT etc.)
How Does The Process Work?
First and foremost it is worth chatting through your enquiry with one of our advisors, they will quickly be able to run through options and answer any questions you may have. Then, based on what you have told us we will issue you with a decision in principle within 2 hours. This will outline the interest rate you can expect to pay and related lender fees. If based on this you are happy to proceed the process will generally be as follows:-
- Talk through your decision in principle with your advisor who will happily answer any questions.
- Your advisor will either send you the application form or complete this by phone. You will also receive a list of documents needed for submission.
- Once the application is submitted, if accepted by the lender they will issue a bridging loan offer– this will outline the full lending terms and any additional information needed to complete the loan.
- The valuation will be instructed and the legal process started.
- Your solicitor will contact you to run through the terms of the loan and make sure you understand all related terms and conditions.
- If the property valuation is satisfactory the lender will then sign the loan off for completion, you will then sign the legal documents to complete. You may also receive a completion statement.
- The lender will transfer the funds to your solicitor to complete the process. Any remaining funds due to you are transferred to you from your solicitor.