A Guide to Commercial Bridging Loans

If you are trying to finance a commercial property project but are struggling to pin down a mortgage, taking out a commercial bridging loan could be the answer. However, as with any type of borrowing, it’s important to know all you can before agreeing to anything and signing on any dotted lines. 

So, with this in mind, join us as we not only run through what a commercial bridging loan is exactly but also highlight some of the key benefits that they can offer. 

What is a Commercial Bridging Loan? 

In simple terms, a commercial bridging loan is a short-term financing arrangement secured against the perceived value of a commercial property. 

Whether it be an office space, hotel, warehouse, shop or retail unit, these loans can be taken out by more or less anyone who works in a commercial space and offer a great alternative to a mortgage. In fact, a commercial bridging loan actually comprises two separate types of products within it – what’s known as a bridging loan, and a commercial mortgage. 

In essence, the bridging loan allows the initial commercial property purchase to go through, whereas the business mortgage sets up a longer-term financing arrangement with a lender. 

What Are the Benefits of a Commercial Bridging Loan? 

As we’ve touched on already, commercial bridging loans can offer a huge number of benefits. These typically include: 

• Quick Turnaround Times. Verus Capital is one example of a lender that can arrange a commercial bridging loan in as little as one to two weeks, making them particularly useful whenever you need to access funds quickly. This might include, for example, when buying a property at auction, where it won’t always be possible to set up a commercial mortgage in time for the sale to go through. 

• Short Term Arrangement. Commercial bridging loans can typically be repaid over a period of between one and 24 months. Therefore, if you are waiting for capital to come through but need quick access to funds, taking out a short-term commercial bridging loan could prove a lot more beneficial than a mortgage. 

• Added Flexibility. If you are trying to purchase a commercial property that’s derelict, or in dire need of repair work, you’re unlikely to be eligible for a mortgage. However, taking out a commercial bridging loan could provide you with the funds you need to get this repair work done, helping you secure a better mortgage deal later on. 

Which Situations Are Commercial Bridging Loans Useful For? 

While on the topic of unmortgageable properties, there are a number of other situations where taking out a commercial bridging loan can prove incredibly useful, as proved by their recent boom in popularity. 

These situations largely centre around times when needing a quick cash flow injection into your business. Whether it be to cover a tax bill, pay for new lines of stock or cover any unexpected staffing costs, taking out a commercial bridging loan provides quick and easy access to funds when you need them most. 

Likewise, if you are looking to expand your business by purchasing new commercial premises, a commercial bridging loan can provide you with the funds you need to move more quickly. 

What Are the Eligibility Criteria for a Commercial Bridging Loan? 

Unlike other forms of borrowing, there are no set eligibility criteria for taking out a commercial bridging loan. However, there are a few key things a lender will look for in your application. These include: 

1. Exit Strategy 

When applying for a commercial bridging loan, your lender will be looking to determine how likely you are to be able to repay what you owe. 

More commonly referred to as your exit strategy, you will need to inform your lender on how you intend to repay the loan – whether it be through selling the property in question or taking a commercial mortgage out on it. 

The lender will then assess certain conditions within your application, such as the property’s location and how much renovation work is required, before letting you know whether you’ve qualified for a loan or not. 

2. Credit Score

As with pretty much any type of borrowing, the better your credit score is, the more likely you will be to get approved. 

Therefore, it’s important to keep track of your credit score and make sure it’s looking nice and healthy when applying for a commercial bridging loan. 

While the lender will be basing the bulk of their judgement on your exit strategy, having a poor credit score could hinder your likelihood of being approved. So, being able to show that you’re a low-risk prospect will certainly help your chances. 

3. Significant Industry Experience 

While on the topic of proving you’re a low-risk prospect, showing that you have significant experience in both the buying and selling of commercial property will also significantly aid your application. 

Likewise, your lender will want to see that you are a profitable business with a good track record. Therefore, by showing them your accounts are all in order and outlining any future business plans you have, this could convince them you’ll be able to afford the repayments expected of you. 

How Can I Apply? 

As a slightly more niche type of borrowing, you will need to source a specialist commercial bridging loan broker when applying for a commercial bridging loan. 

They will then have the market knowledge and experience required to not only secure a commercial mortgage for you but also ensure you get the best deal possible for your specific circumstances.