For many businesses, a commercial bridging loan can be a great way of boosting your funds and having some extra capital to play with. These loans are something that is used within the property and can be helpful for those who may fall short of the funds required for purchase.
But what are commercial bridging loans and how can I get on? We’ll be answering those questions for you today! When it comes to borrowing money, taking out a loan is a serious consideration that shouldn’t be made easily.
Hopefully, by the end of this article, you’ll have a more informed knowledge of how commercial bridging loans work and if they’re right for your business.
What Is a Commercial Bridging Loan?
A commercial bridging loan is a short-term loan that you secure typically for commercial property. These loans are required when you need a quick injection into a property that you’re buying. A good understanding and strategy are required in order to repay the loan when it’s due.
How Can I Get a Commercial Bridging Loan?
You can usually get a commercial bridging loan from any number of lenders who offer this service. There are plenty out there but it’s worthwhile to do your research and to take a look at all of the offers on the table before you pick one specifically.
Each lender is going to be a little different from the next in what fees they charge, the amount you can borrow as a loan, and any other additional terms and conditions.
How Do Commercial Bridging Loans Work?
These loans can be used when you’re buying a commercial property or a property that’s part commercial and part residential. It can also be used for buying a new business, providing some extra cash to help pay employees, and more.
These loans can be used further where property chains are broken and in environments like property auctions. Not everyone who goes to an auction may have the cash to present upfront, so a bridging loan can come in handy.
As long as there’s an exit strategy in place then you can use the money for a variety of businesses reasons.
What Is Commercial Bridging Finance Used For?
Think of commercial bridging finance like a bridge. It helps connect two sides together, your business and the desired commercial property or business need that you require the money for.
They’re used in cases where the individual or business needs to secure funds quickly or release funds from a commercial property. In a way, it helps businesses and individuals to continue with their projects and intentions without any delays.
Do I Qualify for a Commercial Bridging Loan?
To qualify for a commercial bridging loan, you need to have more than 40% of the commercial property that’s commercially used. For example, if you’re buying a shop with a flat attached to the top of it, then the shop needs to be worth more than 40% of the property’s total value.
What Security is Needed for Commercial Bridge Loans?
For commercial bridge loans, the lender will usually require some form of collateral as security. Collateral means you’ll need to throw in some form of property, equipment, or assets that the lender could use towards paying back the loan if you weren’t able to.
Both the lender and borrower will go into an agreement whereby the lender will take ownership of any collateral if the loan isn’t repaid as it was originally agreed. Therefore, it’s essential that you’re able to pay everything back properly and within plenty of time.
What Are the Costs of a Commercial Bridging Loan?
It’s worth knowing that as these loans are only used for a short period of time, it means they’re going to be more expensive than traditional mortgages that you’ll come across both commercially and for residential purposes.
You’ll likely expect higher interest rates than most standard loans, which is to be expected when there’s such a short loan period. These interest rates can be anything from 0.5% to 3.0% per month. These will differ though, depending on the lender you choose.
The interest rates themselves can either be serviced or retained and added onto the loan. It’s something that the lender and client would discuss prior to the loan being processed.
Will I Need a Business Plan to Get Commercial Bridging Finance?
As good practice, it’s worthwhile having a business plan in place. This can be important for those lenders who may require you to have such a plan in place. Underwriters may also want to see one where there’s a commercial element to the property, which in this case, there would be.
By having a business plan ready, you’ve got more opportunity to impress the lender and convince them to part with their money for this project or reasoning for the money.
Commercial Bridging Loans Pros and Cons
There are always some advantages and disadvantages to loans. Here are the pros and cons of commercial bridging loans to work out whether this is the right choice for you.
It’s quick to arrange – One of the main benefits of commercial bridging loans is that they are normally quick to arrange in comparison to other loans on the market. Great for those who need funds fast!
More affordable for monthly payments – The interest can be retained and added on to the total loan amount. Therefore it can make it more affordable for those who need to monitor their cash flow more closely.
Usually provided without exit fees – Typically, there are no expensive exit fees to endure, should there be a need for early repayments.
Available for diverse situations – The commercial bridging loan is an excellent one for those who may need it for any number of reasons. It’s not restricted for use on just one thing like some loans can be,
High-Interest Rates – With high-interest rates included in the loan, it can make the overall payback significantly more expensive than other options.
Currently unregulated – Commercial bridging finance is a type of loan that’s unregulated, meaning borrowers have no protection from the FCA. This can prove quite worrying for some who may want the security of the authority.
Choosing the Right Commercial Bridging Loan
Choosing the right lender for your needs is one that will take a bit of research on your part and even seeking the advice of a broker if applicable.
Whilst these can be a quick solution for fast funds into your bank account, it’s important to cover all the details. Look at what terms are being offered and what interest is being charged. There may also be additional fees, which is something you’ll need to look into when purchasing commercial property.
Don’t rush the process of finding the right commercial bridging loan, even if you’re in a rush to get the money. You want to make sure you’ve entered into the right deal for you and your needs.
Can I Get Commercial Bridging Finance If I Have Bad Credit?
You may sometimes still be able to get commercial bridging finance despite having a bad credit history. There may be lenders out there who are willing to give you the money. However, what you might find is that you’re limited with the amount of choice you have available.
To improve your chances of getting plenty of choices, there are a few things you can do before applying to lenders.
- Provide a strong exit strategy – Make sure you’ve created a detailed plan when it comes to helping the lender understand what would happen in order to pay the loan back in full.
- Clean up your credit – Do whatever you can to help clean up your credit. It shouldn’t be too hard and it’s the little things that can make a big difference to your credit score.
- Have experience in property – The lender is more likely to give you the loan if you have experience in property already. They will still consider newcomers to the property market but experienced property owners and developers will be well favoured.
- A good deposit – A deposit is very important because lenders will like that you’ve got a good amount already to put towards the property.
- Property for security – When it comes to collateral, the more you can provide, the better you’ll look for the lender.
As a business owner or investor, it pays to have all of the available lenders on the table for you to choose from. Particularly when it comes to short-term loans like these with high-interest rates, you want to be able to save as much money as possible.
Make the necessary changes and improvements and you’ll thank yourself later when you’re presented with all of the lenders!
Types of Bridging Loan Lenders
When it comes to purchasing a commercial property, there are two types of commercial bridge loan lenders. These are regulated and unregulated loans. Having a better understanding of what these are and what makes them different can help you make a more informed decision for your business.
Regulated loans are for residential purposes only. So with that said, it’s not going to be a suitable one if you’re buying a commercial property. However, there will be some that are intending to use these loans to buy residential property that they’re looking to invest into.
These are overseen by what’s called the Financial Conduct Authority. They’re a regulatory body that gives the borrowers extra protection when it comes to receiving bad advice or being mis-sold a product.
Unregulated bridging loans are unregulated due to the fact that the FCA doesn’t oversee them. Whilst they may be less favoured by borrowers, they are still being used when it comes to making use of bridging loans.
With unregulated bridging lenders, you have a bit of extra flexibility.
A bridging loan can be a great way to provide some funds quickly and easily for any business or individual who may need it. It’s a worthwhile option to consider for those who are looking for short-term options when borrowing money.
What is the difference between a commercial bridging loan and a commercial mortgage?
Bridging loans are only short-term finance options whereas a commercial mortgage would typically be for those who wish to buy a property and have the loan for the long-term.
A commercial bridging loan can be acquired for most types of commercial property and land, whereas with commercial mortgages, there are more restrictions in place over what it can be used for.
How much can I borrow?
Being able to borrow as much as you require is important and with commercial bridging loans, you may be able to borrow up to 75% of the property’s value. It’s important to consider though that interest will be added onto this, so you should factor this in when deciding on how much to borrow.
When can I expect to receive my commercial bridging loan?
With various factors considered, a bridging loan can take anywhere from 72 hours to a couple of weeks to complete.
It’s a much quicker process than most other commercial loans and forms of borrowing money from lenders, which is what makes it so appealing!
Do I need to use a broker?
No, it’s not necessary for you to use a broker when it comes to getting a bridging loan.
However, it is advisable to talk to a broker if you don’t fancy trawling through the various lenders available and having to compare the lenders against one another when a broker will do that for you.
There are some lenders that are regulated and require applications through a broker, rather than the client coming directly to them. It’s worth knowing your options and if a broker is useful to you, then by all means, use one!