A Guide to Bridging Finance for Commercial Property

There is a lot of confusion around bridging loans and using these in order to purchase new businesses and commercial property in the UK.

Bridging loans are a short-term loan solution that can be approved in just a matter of days, some of which can be completed in just 72 hours.

The term ‘bridge’ is used, as the finance bridges the gap between debts that are due and a line or credit that is not yet available to the borrower. This is mainly seen when purchasing a property if a mortgage is not approved immediately.

What Can a Bridging Loan be Used for?

Property purchasers will be able to use a bridging loan for most commercial uses, including purchasing or renovating both land and commercial properties. The borrower must be able to provide the lender will all relevant details, including when the loan will realistically be able to be paid off, and supply them with a clear ‘exit’.

A good example of when a business owner might need a bridging loan is at an auction. If a great opportunity arises and they need the funds in just a few days’ time, a bridging loan will be able to see them through until their mortgage gets approved. It would be a shame for someone to miss out on such a great deal due to the lack of finance.

For other bridging loan uses, read more here: What Can a Bridging Loan Be Used For?

What is an ‘Exit’?

So, above, it was mentioned that those applying for bridging finance will need an ‘exit’. This is the term brokers and lenders use when they want to know how the loan will be cleared, approximately how long it will take, or when the finance will become more permanent, such as a mortgage.

There are two types of bridging loans, open and closed. The more common type of loan is closed – there is always a fixed exit date in place, so lenders are more likely to lend on these terms as they have the promise of the funds.  Open bridging finance is less common and usually comes with higher rates as there is less certainty.

What Do You Need to Get a Bridging Loan?

If you’re considering applying for a bridging loan, then there are a few things that you will need to take along with you in order to apply.

Personal Details – Your full name, current address, birth date, employment status and information on any other properties that you own.

Property Details – You’ll need to supply details of the property that you’re planning on purchasing. These details include the type of property, the property address, and its value and the tenure, whether it is freehold or leasehold.

Documentation – Usually the lender will ask for proof of ID and address, an asset and liabilities statement, and an AIP for the follow-on mortgage, if refinancing.

Loan Request Details – The lender will want details about how much you wish to borrow. Generally, lenders will go to a maximum LTV of 75% of the gross loan amount. This includes retained interest for the term of the loan and any arrangement or broker fees. They will also want to know how long you want the loan for and also, the exit strategy from you, which has previously been mentioned.

However, every lender is different, and while the above are standard things that your broker may require to see, don’t be surprised if they ask for any more details or documentation. It is always best to check beforehand so that the process isn’t delayed.