Commercial bridging loans are similar to their conventional counterparts, though are issued with commercial (i.e. business) applications in mind.
In the FAQs below, we take a look at five of the most important and commonly-
asked questions on the functions and features of commercial bridging finance.
1. When Should You Use a Commercial Bridging Loan?
A commercial bridging loan can be used for almost any legal purpose whatsoever. It is a significantly faster and more flexible facility to apply for than a commercial mortgage, or a conventional business loan. There are no limitations placed on how much can be borrowed and the full balance is repaid short-term – typically within 6 to 18 months.
As commercial bridging finance can be arranged within a few working days, it is perfect for time-critical purchases and for covering unexpected costs. Purchasing properties at auction is a popular use for commercial bridging loans, as is buying properties and land off-market where sellers are looking to offload their assets as quickly as possible.
If waiting several weeks (or months) to arrange a commercial mortgage is not an option, commercial bridging finance comes highly recommended.
2. What is the Maximum Sum I Can Borrow?
There are no specific limitations placed on how much can be taken out, in the form of a bridging loan. Instead, maximum loan values are based on the value of the assets used by the applicant as security for the facility. Most commercial bridging lenders will offer loans up to a maximum LTV of 75%, though some will go as high as 85%.
This means that if you were to secure a bridging loan against a property you own valued at £500,000, you could perhaps borrow anything from £375,000 to £425,000. The amount you can borrow will be determined by the equity you have in the assets you use as security for the loan and the lender’s maximum LTV.
Your financial status and credit history may influence the maximum LTV you are offered. Typically, the highest LTV loans are reserved for borrowers with excellent credit and evidence of a strong financial position.
3. What Can I Use a Commercial Bridging Loan For?
Lenders tend to place comparatively few restrictions on how their products can be used. The most common use for commercial bridging finance is purchasing investment properties, but this is just one of many potential applications. When significant sums of money are needed in a hurry for any purpose, a commercial bridging loan can be just the thing.
Some businesses use bridging loans to extend and improve their facilities, or to relocate to new premises. Others use them to fund the purchase of essential equipment, or to buy products and materials to enable them to fill their own customers’ orders. Essential repairs and renovations can be conducted using bridging finance, as can the purchase of commercial vehicles and machinery.
A bridging loan can also be useful for covering unexpected costs in a hurry, such as unexpected tax demands.
4. Who is Eligible for a Commercial Bridging Loan?
Commercial bridging loan applications are assessed on the basis of two things. The first is the availability of assets of value to cover the full costs of the loan. Lenders are often willing to accept various different types of assets as security, but most commercial bridging loans are secured against property – residential or commercial.
Secondly, the applicant must provide evidence of a workable exit strategy. This means full details of how and when they plan to repay the loan. A common exit strategy is the sale of a property purchased with a bridging loan, after which the funds raised are used to repay the facility.
You will need to convince your lender that they will get their money back in full and on time, in order for your application to be accepted.