Commercial Mortgage Bridging Loans

If you’re searching for a business loan to fill a short-term gap, a commercial bridging loan could be what you’re looking for. This type of specialist financing is done on a case-by-case basis. So, there’s only a small number of lenders available who can help.

This guide covers everything you need to know about finding a suitable bridging loan and getting one set up for your company. You’ll learn all about how they work, what criteria you need to meet, and how to use one in conjunction with a mortgage.

What is a commercial bridging loan?

This is when you use temporary bridging finance in combination with a business mortgage to buy a commercial property or a plot of land. These are normally two separate products but there are instances when it makes sense to use them alongside each other.

It’s a useful way of using a short-term financial arrangement to buy commercial property whilst also including a mortgage element to form the long-term plan for owning the property (or land).

How these loans work

A commercial bridging loan works in an interesting way. It can provide solutions to certain roadblocks and obstacles you might face when purchasing property or land investments.

Even though bridging loans come with a short timeframe and are usually interest-only, they can benefit you in ways a mortgage can’t. Perhaps you are involved in a time-sensitive deal. Or, you’ve previously dealt with a rejection from a commercial mortgage lender. In both cases, this arrangement could serve you well.

Similar to an interest-only mortgage, a bridging loan means you need to prove a suitable plan to pay the remaining money owed at the end of the term. This is known as your ‘exit strategy’. The benefit of using this type of finance in conjunction with a commercial mortgage is that the mortgage aspect fulfils this requirement.

The different types of commercial bridging loans

There are a number of various types of bridging loans that can be set up for your company:

• First charge and second charge: a ‘charge’ is a legal agreement that states in what order you’ll repay lenders if you can’t pay back multiple loans. So, if you’ve an existing commercial mortgage, the bridging loan becomes a second charge.
• Variable or fixed interest: commercial bridging loans will be interest-only, but the rates can be either fixed or variable. Fixed rates will likely be the more expensive option. However, at the time of writing, there are interest rates as low as 0.47%.
• Open bridge loan: this means there’s no concrete date for paying back the loan (but it’s usually a year). So you might find this useful if you’re waiting for the sale of another asset or property.
• Closed bridge loan: with this type you’ll get a set date for paying back the loan. This can be a good option if you have an exact date on when you expect to have both your short and long-term finances back in order.

Why you might use bridging finance

A commercial bridging loan is most helpful if your purchasing finance has to be arranged quickly. They are much faster to set up than a standard commercial mortgage.

And, they can also be more flexible. You may also go down this route if commercial lenders are likely to turn you down in the short-term.

Some common scenarios for using this type of finance for making a purchase includes:

• Property auctions: the fast nature of these sales means that you might not have time to arrange full financing with a business mortgage. So, a bridging loan allows you to swiftly access funds. Then, you can refinance at a later date onto a commercial mortgage as your exit strategy.
• Unmortgageable properties: some lenders won’t be comfortable backing your ability to renovate a derelict or heavily worn property to later use as a commercial premises. The flexibility of a bridging loan gives you the opportunity to buy the property and then re approach lenders once you finish the repairs. This then means you can arrange a commercial mortgage calculated on the increased value and use it as your exit strategy.
• Chain breaks: you might need to sell another property before moving ahead with your new commercial purchase. But if that sale fell through, a bridging loan can help plug the gap to keep the deal alive. Then, your exit strategy can be the eventual sale of that property.
• Short-term credit or cash flow issues: if your current circumstances mean you don’t qualify for a commercial mortgage, a bridging loan can allow you to proceed with a purchase whilst any issues get ironed out.

How an expert commercial broker can help

Finding lenders who are able to accommodate and set up a commercial bridging loan can be tough because it’s such a specialist area. Using a skilled mortgage broker who understands this type of financing and has the necessary knowledge is going to be crucial.

Because this short-term finance arrangement also includes a longer-term commercial mortgage element, only a small number of specialised lenders can help. This is because commercial mortgages are all developed on a case-by-case basis. Luckily, the experienced brokers we work with will have existing relationships with commercial lenders.

So, this means they can introduce you to the lenders willing to construct a suitable borrowing structure with the most favourable terms for your circumstances. An expert advisor will also evaluate your credit scores, help you prepare all your documents, financial reports, and work with you to establish your exit strategy.

Just make an enquiry and we’ll put you in touch with a commercial broker who has plenty of experience arranging mortgages and bridging loans for businesses.

Risks and things to consider with commercial loans

You’ll find that most bridging loan providers will have minimum investment amounts they work with. For some, this will be at least £50,000, but there are lenders out there who will let you borrow £30,000 or less. For the mortgage part of the deal, you’ll face similar restrictions. The majority of lenders will only consider deals worth over £25,000.

So, when you’re looking to get a loan set up that covers both these elements, it’s important that you deal with a lender who’s willing and able to work within your plans.

You don’t want to waste time approaching commercial lenders who may not even have the capacity to create a bridging loan or mortgage that fits the size of your property deal.

There are also some specific risks to be aware of when considering short-term finance that contains a mortgage aspect:

• Risk of repossession if your exit strategy doesn’t pay out at the right time.
• You can refinance a bridge loan if there’s a delay, but you might get charged considerably for doing this.
• Finance deals like this don’t usually fall under FCA (Financial Conduct Authority) regulation and protection.
• Interest rates are often quite high, which is going to increase your overall expenses.
• There will likely be additional costs such as valuation fees, product arrangement fees, and exit fees.

Eligibility criteria and getting the best rates

With this unique type of financing, there are some important factors that will come into play regarding your eligibility, including:

Speak with a commercial loan expert

To arrange bridging finance for your business that will eventually develop into a full commercial mortgage, your best chance of success is using a specialist broker who understands this market niche.

We offer a free, broker-matching service. This means we’ll be able to quickly assess your business’s needs and then pair you up with a skilled industry expert who has the knowledge and contacts to find you the best deal based on your circumstances.

Just call 0808 189 0463 or make an enquiry and we’ll set up a free, no obligation chat between you and an expert commercial mortgage broker today.