A commercial bridging loan can help your business ‘bridge the gap’ when purchasing commercial real estate, without finalising the sale of your current business facility.
As a business owner, you may find yourself in need of quick access to capital for a commercial property purchase, a property renovation, or facility expansion. Commercial bridging loans for real estate can provide you the solution if you do not have the available capital for such cases. Essentially, these loans allow you to secure funding quickly when your circumstances demand speed, even if you don’t yet have the full amount currently available.
How your business can use a bridging loan for commercial real estate:
Purchasing a new property before selling an existing one
Useful in the cases where your business is expanding or moving to a new location. You may find that the new property suits your needs, however you are still in the process of selling your existing commercial space. A bridging loan can help your business secure the new property while waiting for the sale of your old facility to complete. Thus, eliminating the need to delay your expansion plans/meaning you don’t miss out on a valuable opportunity.
When renovating or refurbishing
Your business may be interested in purchasing a property that requires some upgrades before it’s suitable for use. A bridging loan can help you to fund the purchase and immediately begin renovating the facility to suit your business needs. This is commonplace in the hospitality sector, where operators need to refurbish and refit a site before opening a hotel/restaurant.
Taking advantage of timely opportunities
Timing is crucial in commercial real-estate. If you’ve spotted a potential opportunity, waiting for traditional loan approval might not work to suit your time frame. Bridging loans are ideal for situations where you need access to funding quickly for commercial property.
When expanding/securing a larger commercial facility
If you’re eyeing a larger commercial facility, but you haven’t got the full financing yet – a bridging loan can help you to secure the facility. This allows you the time to arrange longer-term financing, or indeed waiting for additional capital from other sources.
Key benefits of bridging loans for commercial real estate
Speed
Bridging loans are fast to arrange compared to traditional loans.
Flexibility
Whether buying a property quickly or waiting for funds to come through for a renovation, bridging loans can provide you the flexibility you need.
Short term solution
Bridging loans are designed to be repaid in a short time frame. This means you don’t tie your business into long term debt.
Access to larger deals
With the correct bridging finance, you may be able to secure larger commercial properties that may not be available due to the slower nature of conventional loans.
Flexibility with bridging loans
Unlike in traditional borrowing, there is flexibility on how you choose to repay the loan. In addition to this, bridging loans have interest rates quoted as monthly due to their short term nature, and most lenders will only charge you interest on the months that your loan is outstanding. For instance, if you take out a 12 month bridging loan but you pay it back in 6 months, you’ll only have to pay 6 months worth of interest.
Aspects of bridging loans to keep in mind:
Repayment terms
Most bridging loans are short term. Make sure you have planned financially to be able to repay the loan at the end of the term.
Exit strategy
Bridging loan lenders will want to see that you have a clear plan to repay the loan. This is often through selling existing property or securing long-term financing.
Higher interest rates
Due to the short term nature of bridging loans, they often come with higher interest rates compared to traditional loans.
How is interest repaid in commercial bridging loans?
Borrowers have a number of different options compared to conventional loans and commercial mortgages. There are 3 common methods for repaying the interest on bridging loans:
Rolled up interest
With rolled-up interest, you pay the sum of interest at the end of the term. Each month, interest accrues at a pre-agreed rate set by the lender. At the end of the term, you pay the interest and the loan amount in a lump sum.
Monthly interest rates
Similar to your standard mortgage, you pay the interest payments monthly at a set rate. Bear in mind, you are only paying the interest – this does not reduced the capital borrowed; this is repaid at the end of the term in a lump sum.
Retained interest
Your maximum interest payable is included in your original loan value. At the end of the term, you repay your loan in full including any interest accrued. You’ll only be charged interest on the months where the loan was outstanding, meaning if you repay a retained interest bridging loan early, you could be entitled to a refund on the months you did not accrue interest.
Frequently Asked Questions
How much money can I borrow in commercial bridging loans?
The amount you can borrow with a commercial bridging loan is usually determined by the value of the property used to secure the funding. Every finance application is different, so it’s best to speak with a trusted broker who can guide you.
Do I need a salary for a commercial bridging loan?
Bridging loans often do not require a salary, as there are no monthly repayments with bridging loans. However, it is likely you will need to present your financial history to lenders to demonstrate your business’ ability to generate money.
Do commercial bridging loans affect my credit score?
Your credit score may be impacted if you have difficulty paying your bridging loan back. Speak to your financial advisor or a solicitor when considering taking out a bridging loan. If you have a less than favourable credit history, it may be more difficult to qualify for a bridging loan.
How long do you pay bridging loan interest for?
Typically, most lenders will only charge you interest on the months that your loan is outstanding. For example, if you take out a 12 month bridging loan but you pay it back in 5 months, you’ll only have to pay 5 months worth of interest.
What is a drawdown option in bridging loans?
Some lenders offer drawdown options, meaning you receive the money in stages that reflect your business’ need for the funding. For instance, if you are refurbishing a restaurant and you take out a £500,000 bridging loan with drawdown options – you won’t be able to spend that full £500,000 on day one. Instead, the lender will provide funds in stages. You may take £150,000 upfront, £150,000 when you have completed half of your refurbishments, and the final £200,000 as and when it is required to finish the refurb project.
Conclusion
Bridging loans can provide your business with access to quick funding it needs to secure a commercial property in a timely manner. With flexibility for the use of the funds (refurbishment, renovation or purchase), bridging loans can be used across a variety of your commercial property needs. Additionally, bridging loans are flexible in their repayment terms – meaning you have more options for how to pay the loan and the interest back. Bridging loans provide the option to secure commercial property without the need to delay the process in order to secure funding. Book a discovery call with Mill Wood to speak with a broker with the expertise to guide you through the bridging finance process.