A commercial bridging loan is a short-term facility secured against commercial, semi-commercial or land.
Property used to secure commercial bridging finance
- Office space
- Industrial units
- Land with and without planning
- Student accommodation
- Hospitality assets such as pubs, bars, restaurants, and hotels
- Semi-commercial that has both a commercial and residential element to it.
Commercial and semi-commercial bridging loans are available to property landlords, developers, and owner-occupied businesses wanting to borrow between £100,000 – £25,00,000 with interest rates starting from 0.69% per month for between 3-18 months.
Purpose of commercial bridging loans
- Property purchase
- Equity release
- Property refurbishment projects
- Permitted development finance
- Working capital
- Business acquisition
- Settle tax liabilities
- Business investment
- Buyout a business partner
- Finance business expansion
- Fulfill large contracts
- Settle personal liabilities
Commercial bridging loans are usually repaid from either the sale of the secured property or other assets, refinancing onto a lower cost term facility or other source of incoming funds such as a tax rebate or business income.
The main advantages of commercial bridging finance is the speed and simplicity funding can be organized to purchase or release equity from a property.
Unlike a mortgage, a bridging loan can be arranged in weeks and with less onerous criteria, which means you can take advantage of investment opportunities with tight completion deadlines or meet urgent business or personal expenditure without going through a lengthy application process.
Commercial bridging loan costs and considerations
The interest rate on a commercial bridging loan is determined by the risk appetite of the lender, loan to value, type and quality of the property, location, and the strength of the borrower. The lower the risk, the lower your overall borrowing costs.
In most cases, the full amount of interest due on the loan is deducted from the initial loan (retained interest) or is paid monthly (serviced). In some cases, Interest added to the loan (rolled interest) is possible within the maximum LTV criteria. Where interest is serviced, the bridging lender will require proof that you can make these payments by way of rental income, salary or profits generated from your business.
Example of retained interest calculation:
Gross loan: £500,000
Interest: 0.79% per month for 15 months = £59,250
Arrangement fee: 1.5% = £7,500 deducted from loan
Net loan: £433,250 (£500,000 – £59,250 – £7,500)
Lender’s arrangement fee or facility fee start from 1.5%. Many lenders do not apply exit fees, but when it does apply, expect to pay between 1-2% of the loan.
The loan to value, ie the percentage you can borrow against the property value will vary from lender to lender, but as a guide, it is possible to borrow up to 75% of the vacant possession value or market value.
Commercial bridging lenders have a much higher risk tolerance and assess applications on a case-by-case basis. Generally, providing they are comfortable with the security and there is a clear and credible exit route, they can lend to first-time buyers, borrowers with low income, adverse credit and foreign nationals, but expect loan to value and pricing to be adjusted to level out the risk.
Contact Quest commercial finance can help you source bridging finance secured against a commercial property you own or looking to purchase. We work with a large panel of Commercial bridging lenders. Having access to a wide selection of lenders means we are able to finance most deals that are tailored to the borrowers needs and circumstances.