With more and more people turning to short-term financing to cover the cost of development projects, refurbishments, buying property or simply expanding their businesses, you may have wondered whether you should get a bridging loan for your commercial property. Discover how bridgings loans work, who they are suitable for and how to get the best deal.
What Is A Commercial Bridging Loan?
In simple terms, it is a short-term financing solution that bridges the gap between securing a commercial property against a loan and finding a more conventional, long-term form of finance, such as a mortgage or a bank loan.
To secure this type of loan, the overall commercial use of the property will need to be above 40%. For example, if you are buying a retail property with a flat above it, the flat’s value will need to be less than 40% of the property’s total value.
What Can You Use It For?
Part of deciding whether a bridging loan is right for you involves determining what you will actually use it for. For example, you may want to get bridging finance to cover the cost of purchasing an office unit whilst you wait for the sale of your current office to go through to then complete the purchase.
Similarly, bridging loans are useful when traditional finance is taking too long to come in. Instead of missing out on an amazing investment opportunity whilst you wait for a mortgage, you can buy a new commercial property with short-term financing.
What Are The Terms?
Generally, most commercial bridging loans for properties have the following features:
- Rates start from: 0.65%
- Charges: 1st and 2nd
- Value: Up to £50 million
- Loan-to-value ratio: Up to 65%
- Term length: Up to 24 months
- Security: Commercial and residential property
- Fees: No hidden charges
Eligibility
It is worth noting that commercial bridging loans are unregulated. In other words, the Financial Conduct Authority (FCA) does not oversee any lenders offering bridging loans. However, there is no need to worry as most lenders carry out assessments to not only protect themselves but also borrowers. Before approving your application, lenders will look at:
1. Your Exit Strategy
As a standard, most lenders will ask you to provide an exit strategy with your application. This is so they can see how you plan on repaying the loan – whether that be securing a mortgage or selling the property. Part of this process may involve assessing how realistic your plan is depending on the location of the property and the conditions of the market.
2. Property Experience
If you are taking on a particularly complex development project, the lender may ask you to prove that you have a track record of successfully developing properties.
3. Business Finances
If the loan is for your business or limited company, the lender may ask to see your accounts to assess your profitability before interest, tax and amortisation.
Benefits
If you are looking for an alternative to a mortgage or bank loan or to simply bridge the gap in your finances until you can secure a more long-term solution, a bridging loan may be ideal. Here are the advantages of short-term financing for commercial properties.
1. Quick Turnarounds
Of course, the main benefit of this type of loan is that it provides a quick method to access capital. Instead of taking months to come through, you can get a bridging loan within days. This is invaluable in time-sensitive situations.
2. Flexible Requirements
Unlike traditional mortgage loans, applications are not assessed based on whether you can meet the purchase price of the property or even payments. Instead, they are decided based on the value of the property. Plus, you can secure bridging loans on unmortgageable properties. That way, you can fund the repair work required to secure a mortgage.
3. More Accessible For Businesses
It can be tricky for limited companies, foreign nationals and Channel Island-incorporated entities to secure high-street finance. But thankfully, the requirements to get a bridging loan are less stringent, making it easier for you to access cash when you need it.
4. Tailored
Another upside to unregulated loans is that they can be tailored to suit your specific needs. This means that there is no need to worry about breaking the bank to secure capital.
How Much Do They Cost?
While bridging loans can provide a quick solution and resolve cash flow issues, it is important to think about the costs in the long run. The cost of your loan will vary depending on the following factors:
- Loan amount
- Property value
- Term length
- Interest – Retained, monthly or rolled up
Securing The Best Rate With AptPay
If you are looking to get the best possible rate on a bridging loan for a commercial property, it makes sense to work with specialist brokers like us. We have developed strong relationships with the UK’s leading lenders and will use our expertise to help you secure the best rate.
Negotiating the terms of your loan can be difficult but you do not have to do it alone. With us in your corner, you can get fast access to capital at an affordable rate. Simply contact us today to arrange a meeting with one of our experienced brokers.
FAQ
Can I borrow money against my commercial property?
Yes. You can get a commercial bridging loan against your property to cover a development project, a refurbishment or the purchase of a new property. The amount you can borrow will be based on the value of your property.
What is the minimum deposit for a bridging loan?
Generally, property bridging loans are offered with a loan-to-value ratio of around 65%. This means that you will need a deposit of at least 35% of the property’s value.
