Head of Content
Head of Bridging and Commercial
Welcome to our guide to commercial bridging loans. Here you will learn how this type of finance works, what it can be used for and how to get the best deal on it.
What is a commercial bridging loan?
A commercial bridging loan is a type of short-term finance used mainly for investing in commercial property. This includes buying an investment property, development projects and purchasing a premises for yourself or your business on an owner-occupier basis.
These loans are offered on an interest-only basis and are unregulated, meaning that lenders can operate with flexibility, free of restrictions from the Financial Conduct Authority (FCA).
Bridging finance is also useful when you need funds for a property investment very quickly, within a timeframe where a mortgage would not be an option.
Connect with a commercial bridging finance specialist
How do they work?
Bridging finance for businesses is a type of secured finance, so the lender will need to place a charge on one of the properties involved in the transaction. These loans come with high interest rates and short term lengths, usually no more than 12 months.
After the term has elapsed, you will need an ‘exit strategy’ to settle the debt. This will need to be approved by the lender in advance, and would usually be the sale of the property at a profit, or a remortgage onto a commercial investment or owner-occupier mortgage.
Commercial bridging finance could be an option if you:
Are buying a commercial property at auction
Want to develop an ‘unmortgageable’ property
Need funds for a quick non-residential refurbishment job
Aren’t eligible for a commercial mortgage in the short term
One of the main benefits of bridging for commercial property investors is how flexible it can be. With this in mind, it can be used in pretty much any transaction involving business property, where the borrower has a gap between a debt and a mainline of credit.
Other scenarios, outside of property, where bridging loans can help businesses include:
- Acquisitions and pre-development
- To cover a short-term lull in trading activity
- To acquire large amounts of stock
- To invest in assets such as machinery
Eligibility criteria
The eligibility criteria for commercial bridging finance is as follow:
- Exit strategy: Your chances of approval will hinge on how strong your exit strategy is. It will most commonly be the sale of the property or a remortgage onto a long-term commercial agreement, so you will need evidence that either is probable.
- Deposit requirements: You will need around 25% of the property’s value to put down as a deposit, but 100% commercial bridging loans are available for borrowers with additional security, such as property/assets the debt can be secured against.
- Experience in property: Your bridging finance lender is more likely to be convinced that your plans are achievable if you have experience and a track record in commercial property. There are, however, some options for new investors.
- Business plan: Depending on the purpose of the funds, some lenders might request a business plan. For example, if the funds are to help your firm through a trading lull, they may want to see a roadmap detailing when profits will normalise.
- Credit history: As commercial bridging finance is unregulated, lenders can be flexible with their credit history requirements. If, however, you or your business has credit problems that put the exit strategy at risk, approval can be more difficult.
Commercial bridging loans are available to individuals, business partnerships, small and medium-sized enterprises (SMEs), limited companies, and large companies.
How to get a commercial bridging loan
Your first step should be to speak to a broker who specialises in commercial bridging loans. This type of finance can be very flexible and offers a lifeline when timing is of the essence, but interest rates can be high and no bridging agreement is without risk.
We have bridging advisors on our team who can offer you bespoke advice, make you fully aware of the risks and help you avoid them, and make sure you land the best deal.
Our bridging finance specialists can provide the following services:
- Help you access every commercial bridging lender on the market
- Compare deals on your behalf, including broker-exclusive ones
- Provide bespoke advice on your options and exit strategy
- Guidance throughout the application process
- Ongoing support if you need a commercial mortgage afterwards
Ready to get started on your journey? Fill out our quick contact form to speak to one of our commercial bridging finance brokers about your options today.
Available lenders and interest rates
Most bridging loan lenders are unregulated and therefore well placed to offer this type of finance for business purposes, on a flexible basis. Available lenders include:
The above is merely a small sample of the providers available. Your best bet is to have one of our brokers go through every possible option with you, to ensure you get the best deal. Approaching one of these lenders directly means limiting yourself to just one set of products.
The rates for commercial bridging finance can be high, higher than longer-term finance such as mortgages. This is because the quotes you will see online come with daily interest charges that build up and are payable either monthly or at the end of the agreement.
Things to consider
Here are a few things to consider before you apply for a bridging loan for business purposes:
Maximum borrowing caps
The maximum loan amounts on business bridging finance can be flexible, with lenders free to offer large loans on a case-by-case basis. Some bridging providers, however, have maximum borrowing caps of anywhere between £2 million and £10 million.
Others have strict loan-to-value requirements and won’t let you borrow more than 75% of the property or security asset’s value. It may be possible to borrow more than this by putting up extra security, such as a property or asset you own and hold enough equity in.
Second charge lending is available
It is possible to take out a commercial bridging loan as a second charge debt, meaning it can be secured against a property that already has finance on it.
The mortgage, in this scenario, would be classed as the ‘first charge’ debt and the bridging would sit behind it. In the event that the property/asset has to be repossessed, the bridging provider would be second in line for repayment from the sale proceeds.
There are alternatives to explore
Keep in mind that a commercial bridging loan is not your only option as there are other types of commercial finance that could be a better fit for your needs.
Be sure to speak to your broker about the other options, including refurbishment loans, asset finance, remortgaging a commercial property to release equity, and business loans.
Why choose Teito for your bridging finance needs?
Commercial bridging finance can be complex and not without risk, but the good news is that our brokers specialise in this area. The bridging specialists on our team have the knowledge, experience and lender contacts you need to get the best possible outcome.
Here are just some of the reasons people choose use for their commercial bridging needs:
- Our brokers specialise in commercial bridging
- They have access to exclusive rates and deals
- Our service is rated 5 stars on leading review sites
- Your first consultation is FREE
Ready to take advantage of a free, no-obligation chat with a broker who specialises in commercial bridging finance? Fill out our quick form to get started.
FAQs
They are unregulated. Although this means your transaction won’t have protection from the Financial Services Authority (FCA), this does not mean that commercial bridging is unsafe.
There are several bodies upholding standards within this corner of the market, including FIBA, NACFB, IMLA and ASTL. Our bridging brokers also adhere to the highest standards and will be fully transparent about all of the costs and risks involved in the process.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.