For most businesses, there isn’t a large pot of cash that can be freely dipped into when an opportunity comes up. To help businesses be able to make a large purchase, whilst waiting for funds to be available, a bridging loan can come in handy.
A bridging loan means that a business can access a large amount of funds in a relatively short period of time.
Bridging loans are a secured type of business loan and act as a short term financing option used to bridge the gap between accessing a longer term solution.
Bridging loans work by providing the borrowing business with the money needed for a specific purchase, while waiting for funds to be freed up.
As a bridging loan is a short term solution, term lengths are a maximum of 12-24 months.
A bridging loan will require an exit plan, so that the lender can see there is a clear plan in place to pay off a large amount of funds in a short period of time, for example by getting a commercial mortgage or selling a property.
Commercial bridging finance specialists understand that a quick turnaround is essential for applicants. Time is of the essence when it comes to funding a purchase, particularly for those buying at auction and they aim to make funds available within just a few days where possible. The loan is usually secured against the property being purchased, however other property assets can be used as security where unencumbered.
Commercial bridging loans can typically be pre-approved by lenders within 24-48 hours, giving you the freedom to bid on a property without fear of losing your deposit or tarnishing your reputation as a buyer.
We work with reputable lending partners who will be able to explain all of the costs and fees to you upfront so you'll know exactly what you'll need to repay each month. Interest can either be included in your monthly repayments or rolled up into the loan amount, giving you greater flexibility when it comes to settling your balance.
There are many uses for a bridging loan. Businesses will tend to opt for a bridging loan when they need a fast form of short term financing. Below are some examples of what your business could use a bridging loan for:
An open bridge loan is where there is no specific date for the business to repay the loan. There will be a term length, so you will have to pay it before the term is over (usually 12 months). However you can repay the loan any date within that period. This could be suitable for a business that has found a property they wish to purchase but hasn’t sold their own property yet.
Closed bridging loans have a fixed repayment date so you will know exactly when the loan needs to be repaid.
With a fixed-rate bridging loan, the business and the lender will agree to an interest rate so you will know exactly how much you will need to repay. Your monthly repayments will be the same every month with a fixed rate bridging loan. However with a variable rate bridging loan, your interest rates can change either up or down each month.
Bridging loans can be used by almost any developer or business in need of quick funds to invest in the purchase of a commercial premises.
Sourcing traditional short term loans for use within the property market can prove difficult to get, which is why specialist bridging loans have become so widely used in this sector.
Unlike development loans, bridging loans can be taken from anywhere between £25,000 - £40m, helping both first time developers and experienced property owners to take advantage of new opportunities.
From warehouses and factories to office and conversions, commercial bridging finance can be used to facilitate the purchase of most business property types as long as there is an adequate exit strategy in place.
Loans are issued for between 1 and 24 months, however they are typically taken for 12 months with the view to either selling the purchased property at a later date or converting the loan into a more traditional commercial mortgage option.
If you already own a commercial property then bridging loans can also be used to secure additional funding for your business, effectively placing a short term mortgage on your existing assets to release capital.
The process of applying for a bridging loan can be a quick one. There’s a few pieces of information you’ll need to put together for the bridging lender.
Here’s a step by step of the application process:
1. Give the background details
The lender will need to know a few key details for a bridging loan. You should provide information on what your business does, what you need the bridging loan for, how much of a deposit you have and how much you’re looking to borrow.
2. Gather your documents
You’ll also need to provide some documentation. It’s best to gather up your business’ latest annual financial statement, details about the property you want to purchase and details on the property or asset you’re using as security
3. Answer the funding questionnaire
To put your application together, log into your Capitalise account and complete the questionnaire.
4. Send your application to 4 lenders
One of our specialists will help you put together the application and send it to the 4 lenders most likely to approve you for a loan.
Like all business loans, a bridging loan will charge interest on the funds, but there are additional fees associated with bridging finance. These include an arrangement fee (typically 1-3% of the total borrowing), a fee to value the property and legal fees to take a charge against the property. Some lenders may also charge an exit fee to repay the loan.
To be eligible for a bridging loan, a lender will need to see a clear exit plan for the bridging loan. For a commercial property for example, this would be to refinance onto a commercial mortgage. Up to the discretion of the lender, they will also likely require a business to have a good credit score, be profitable in their last set of accounts, have experience with property or development and have a deposit.
Bridging loans tend to be a quick form of finance. From application, you could get a bridging loan in as little as 72 hours.
Yes you can get a bridging loan with bad credit. Because the loan is secured against a property, there is less risk of the lender losing out on the investment, so it is possible to get a bridging loan with bad credit. However, it's worth bearing in mind a bad credit score will reduce your chances of getting approved and will mean your business will have to pay higher interest rates.
Commercial bridging loans tend to be for the purpose of buying a large asset, so most lenders will have a minimum loan amount of £50,000. Some lenders will have a minimum of £25,000.