Bridging Loans for Commercial Mortgages

One of the key reasons why businesses use bridge loans is because they need a fast, flexible form of financing and either don't have the time or the right eligibility to be able to secure a mortgage.

For example, if you need to quickly purchase a trading premise or property at auction and don't have the time to set up a commercial mortgage, a bridging loan is a much speedier option.

Bridge loans are charged at higher interest rates, and lenders will need to understand the exit strategy to repay the debt at the end of the term.

That means you can't swap a conventional commercial mortgage for a bridging loan altogether but can use the short-term form of finance as a bridge between your requirements and longer-term financial planning.

In many cases, the exit strategy is to remortgage, refinance, or sell the property.

Generally, a bridging loan will run from as little as six months and up to three years as a maximum.

There are lots of reasons why a bridging loan might be an excellent solution for your business mortgage.

Perhaps you have been turned down by your mortgage lender, need faster financing than is available, or require a flexible solution to facilitate business investment.

The flexibility of a bridging loan means businesses can use it in multiple scenarios. In the next section, we'll run through some examples, but bridge finance is often the most effective solution for a property development project.

Say you were investing in a commercial rental site that required significant development. You wouldn't be likely to get competitive terms on a commercial mortgage - if any at all - because it would be a high-risk scenario and potentially very difficult to assess the future retail value of the development.

You can use a bridging loan to finance the cost of the development works and up to a proportion of the original investment cost and refinance later when the development has completed.

Here are some of the most common scenarios when the Revolution Brokers team secure a bridging loan for commercial clients:

• Buying premises at auction. Auctions need a fast turnaround with financing, usually with a 28-day limit to remit the funds. Mortgages can take significantly longer, and so bridging lending can pay the balance in good time.
• Properties that cannot be mortgaged. In many cases, a business is purchasing a property requiring significant renovations, and a mortgage provider cannot offer long-term lending. Bridge finance can fund the upgrades, and be paid back via a mortgage once construction is complete.
• To provide a break in a property chain. If you need to sell existing premises to buy a new site, you might find that chains create time delays. Bridging loans enable you to go ahead with your new investment, without needing to wait for the old property to sell.
• Issues with mortgage eligibility. If you have credit issues or cash flow challenges that make it challenging to secure a mortgage, a bridging loan is usually more flexible when it comes to lending policies. If you expect those issues to be resolved shortly, you can use a bridging loan in the interim.

Some lenders will offer a bridging loan, as well as a mortgage to take over the finance once a particular stage of the project is completed.

It is always advisable to consult an independent broker, who can analyse the viability of both products separately, to make sure you aren't paying over the odds.

Lenders will consider:

• Your exit strategy, looking for a sure-fire way that the bridging loan will be paid back at the end of the term.
• Your experience and business stability.
• How your credit score looks, and whether you have any adverse credit issues to factor in.
• What deposit or security is on offer. Most lenders need around a 30% deposit for a bridging loan, with 20-40% deposits required for commercial mortgages.
• The business profits, to demonstrate whether you have the finances in place to keep up with repayments.

Suppose you don't match with all of the lending criteria. In that case, you can still secure the right financing by consulting the Revolution Brokers team, as experts in unusual and unique commercial financing situations.

Our niche and specialist lenders offer flexible approaches and off-market products that can ensure your investment plans can proceed, even where a mainstream lender cannot help.

Typically, yes, most lenders will have a minimum on their commercial lending products:

• Bridging loans tend to start at £30,000 or £50,000.
• Commercial mortgages tend to start at £26,000.
• A business loan usually finances borrowing of £25,000 or less.

There are always risks with any lending, and you must understand these before going ahead:

• If you fail to repay a bridging loan on time, your property could be repossessed.
• If you refinance your bridging loan outside of the original terms, you may be liable for additional charges.
• The FCA does not regulate bridging loans, so there is a lower chance of compensation if issues arise.
• Interest rates on bridge lending are higher than on other forms of borrowing.

Should you be considering a bridge loan but be concerned about the risks involved, give us a call on 0330 304 3040, and we will run through the options available.

Where you need fast, competitive finance, you are advised to contact an independent whole-of-market broker who isn't tied into any specific brand or lender. We can create a blended deal with both bridging finance and a mortgage offer to streamline your investment.