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When it comes to bridging finance in general, they can sometimes seem confusing. However, bridging loans aren’t as complicated as people may have initially thought and they can be an effective way to ‘bridge the gap’ when people are in urgent need of obtaining finance.

What is a commercial bridge loan?

Commercial bridge loans (also known as commercial bridging loans or business bridge loans) are essentially a form of short-term loan that are often arranged within a short time-frame, but their proceeds are always put towards business expenses.

The loan term can be as little as a single day and usually up to a maximum of 12 months. Loan amounts typically have a maximum of £1 million, and start at £37,500.

A commercial bridge loan can be used to provide you with finance when you need it the most, for example, if you are presented with a real estate investment opportunity that can’t wait, you can secure the funds necessary to make the purchase immediately, before someone beats you to it.

What can bridge financing be used for?

Many people will take on the short term finance solution to buy a new business, secure a residential property, commercial property or investment properties. Once you have secured your investment with a bridge loan, you can then refinance it with a more commercial mortgage, which is likely to take longer to find, apply for and qualify for. Because commercial real estate are often time-sensitive, buying up commercial real estate is one of the most common reasons for securing a commercial bridge loan.

This type of short term loan can also be used to tide your business over before acquisition – which many deem commercial bridge financing, as a business has an impending source of capital lined up (the purchaser) to get out of their short-term financing in the near future. It can also be used for securing great deals for stocking up on inventory, because after you secure the inventory, you can then refinance your commercial bridge loan with a longer-term, more affordable business loan.

As long as you provide a valid exit strategy, the money you loan can be used for a multitude of business reasons ranging from providing your business with working capital, to financing tax liabilities or covering short term cash-flow issues.

Why choose bridging finance?

The idea of obtaining finance fast to provide you with cash while you’re waiting for a longer-term borrowing arrangement to be made is an attractive feature of commercial bridge loans, as it could allow you to potentially secure the investment you want, before someone beats you to it. Bridging finance can also be advantageous as it can be used in a variety of ways that suits your circumstances.

However, when it comes to any form of borrowing it’s important to consider every aspect of it – as there are potential risks that comes with bridging finance.

Things to consider

If you’re thinking about applying for a commercial bridge loan, it’s important to have a robust exit strategy in place for repaying the loan. So you need to be certain that your way of paying off your bridging loan is reliable, otherwise you could find yourself with an expensive debt, or may not even get approved at all.

Additionally, another risk that comes with this type of borrowing is if your investment doesn’t pay off. If you’re not sure that what you’re investing in will pay off, it’s probably best to think things through or speak to a specialist bridging lender – like us, that can help point you in the right direction.

Having a comprehensive exit plan in place reduces your chances of paying high penalty interest rates and potentially losing the property to repossession if the loan cannot be repaid.

You may need to consider whether an open or closed finance arrangement is more suitable for your project.

Is it expensive?

Short-term finance is typically more expensive due to high-interest rates, however, with more lenders entering the market, it’s also competitively priced. The interest rate charged will depend on the proposition in question however, there are many different lenders within the market with different charging structures.

Why choose us?

Bridging loans can be a highly beneficial way of releasing funds to go towards your business needs or to invest in a real-estate purchase, when time is of the essence. However, there are risks and things to consider when it comes to bridging finance and because it is such a specialist area, it’s always advisable to seek the services of a specialist broker, like us.

We can take the time to explain the ins and outs of bridging finance and help establish if this is the best form of finance for your individual needs and requirements. If it isn’t, we’ll help you find a more suitable type of finance and lender, that’s better suited to you.

Our long-lasting relationships with mortgage lenders and loan providers means we are kept abreast of the best rates and latest deals. As well as first time home-buyers, we have also worked extensively with customers seeking buy-to-let mortgages to add to their growing portfolios.

So what are you waiting for? Get in touch today to find out how we can help you with your commercial bridge loan.

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