Commercial Bridge Loans: A Brief FAQ

Commercial mortgage applications are no easier to process or underwrite than conventional mortgage applications. This can prove problematic for commercial real estate investors, who often find themselves presented with time-critical purchase and investment opportunities.

What is a Commercial Bridge Loan?

A commercial bridge loan is a fast-access, short-term loan that can be used for any business-related purpose. With bridging finance, the funds needed to cover major expenses or finance property purchases can be arranged within a few working days.

The full balance of the loan is repayable a few months later, and interest is added to the balance of the loan in the meantime – usually around 0.5% or less.

How Do Bridge Loans Work for Commercial Properties?

Commercial bridging loans can be secured against almost any type of commercial property, including those in derelict condition and most types of land. Typically, lenders will offer a maximum LTV of 80% – i.e. 80% of the value of the property being used as security for the loan.

Security is the main determining factor with regard to eligibility for bridging finance, along with evidence of a workable exit strategy.

When Should I Use a Commercial Bridge Loan?

The flexibility of bridging finance is one of its main points of appeal.  Commercial bridging finance can be used for almost any business-related purpose, including but not limited to the following:

Purchasing Real Estate

Investors and property developers often turn to commercial bridging loans for time-critical real estate purchase opportunities. It can be a particularly useful facility for picking up properties at auction, where full payment is usually required within four weeks.

Buying Inventory

All types of business property purchase costs can also be funded with bridging finance. Many businesses use short-time funding like this to pick up inventory and equipment, as an alternative to using their own on-hand capital.

Tax Bills and Unexpected Outgoings

Business owners often find themselves facing unexpected costs at the worst possible times. Everything from tax bills to urgent repairs to vehicle and equipment replacements, bridging finance can be used to cover all types of urgent outgoings.

What is the Maximum Term Allowed for a Bridge Loan?

All bridging loans are issued exclusively as short-term facilities, and must be repaid as promptly as possible. Monthly interest is charged at around 0.5%, adding up to a cost-effective transaction when repaid promptly.

Most bridging loan specialists limit their loan terms to a maximum of 18 months. However, it is possible to arrange a bridging loan for anything from a few weeks up to two years.

Who Can Qualify for a Commercial Bridge Loan?

Eligibility for commercial bridging finance is assessed on the basis of two things.

The first of which is the provision of adequate security to cover the costs of the loan – usually a residential or commercial property. If you are planning on purchasing a property with bridging finance, you may be able to use it as security for the loan. Most lenders cap their maximum loan amounts at 80% of the value of the assets used as security.

Secondly, lenders expect to see evidence of a viable exit strategy. This means indicating when and how you intend to repay the loan, inclusive of all borrowing costs. An example of an exit strategy could be the sale of a property, which was purchased and renovated using a commercial bridging loan.

How Can I Get a Good Deal on a Bridging Loan?

Comparing the market with the help and support of an experienced broker holds the key to getting an unbeatable deal. In addition, bridging finance is always more cost-effective when repaid promptly.

Avoid the temptation to borrow more than you need to, and ensure you have the option of repaying early in your loan agreement. Lastly, the higher the value of the assets used as security for the loan, the more likely you are to be made a competitive offer.

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