A commercial bridging loan is a short-term financing solution primarily utilised to bridge the gap between an immediate funding requirement and the securing of longer-term finance. This type of loan is often used in real estate transactions to facilitate quick purchases, or to cover urgent business expenses. The loan is secured against a property and is designed to be repaid within a short period, typically 12 – 18 months, once permanent financing is arranged or the property is sold.

Funds from commercial bridging loans can be made available quickly, typically within a few weeks, depending on the lender’s processes and the complexity of the transaction. This rapid availability is one of the key benefits, allowing businesses to capitalise on opportunities without the delays associated with traditional financing methods.

The interest rates on commercial bridging loans are generally higher than those for traditional loans, reflecting the greater risk and short-term nature of the finance. Rates can vary widely but are usually calculated on a monthly basis and depend on factors such as the amount borrowed, the value  and asset class of the collateral, and the borrower’s credit profile.

It is possible to obtain a commercial bridging loan with a poor credit history. Lenders typically place more emphasis on the equity and value of the property used as collateral and the soundness of the exit strategy rather than solely on credit history. However, poorer credit may affect the terms of the loan, potentially resulting in higher interest rates or additional security requirements.

Commercial bridging loans are short-term up to a maximum of 18 months in most cases. The terms are highly flexible, often with interest being ‘rolled up’ to be paid at the end of the loan term, which can aid in managing cash flow during the loan period. There is also the option to ‘service’ the interest, whereby for a higher day one loan amount, the client can pay off the interest monthly throughout the loan period, to have access to this type of funding a ‘proof of affordability’ will need to be completed by the borrower. Borrowers should be mindful of additional fees such as arrangement fees, valuation fees, legal fees, and potentially exit fees, which can all impact the total cost of the loan.

These loans are versatile and can be used for a variety of purposes including quick property purchases, bridging cash flow gaps in business operations, financing property developments, or making renovations to increase property values before a sale or long-term financing arrangement.

The primary risks include the higher interest costs associated with short-term finance and the potential for losing the property if the loan cannot be repaid according to the agreed terms. A clear and realistic exit strategy is crucial to mitigate these risks, ensuring the loan can be repaid either through refinancing, the sale of the property, or from cash flow generated by the business.

The application process involves submitting detailed information with regard to the financial need, the property to be used as collateral, and a viable exit strategy. Required documents typically include financial statements, proof of property ownership, and any other documents that demonstrate the ability to repay the loan. Our team will guide you through this process putting together the application on your behalf before approaching our lenders.