Commercial Bridging Loans FAQ: Five Key Questions Answered
Interested in taking out a commercial bridging loan but unsure how it works?
Read on for concise answers to five of the most important questions on commercial bridging loans and their functions:
Q: When should you use a commercial bridging loan?
A commercial bridging loan should be considered when the purchase, investment or cost in question needs to be covered as quickly as possible. In addition, commercial bridging finance is only suitable when the full balance of the loan can be repaid within a comparatively short period of time, typically six to 18 months. As bridging finance can often be arranged and accessed within a matter of days, it is ideal for covering urgent expenses and for time-critical purchases.
Q: How does commercial bridging finance work?
The facility works in the same way as any other secured commercial loan. The lender issues the loan against the value of a qualifying property (security) with a typical maximum LTV of 75%, though it is sometimes possible to organise bridging finance for up to 100% of the project’s costs. Interest is then applied on a monthly basis – often around 0.5% per month or less – and the full balance of the loan plus borrowing costs is repaid in a single lump sum payment on the agreed date.
Q: How much can I borrow with a bridging loan?
There are no specific limitations with how much can be borrowed with bridging finance. The maximum loan amount will be determined by the value of the assets (usually property) you use to secure the loan against. Borrowing criteria will always be unique from one lender to the next, though bridging finance is typically available from £50,000 and up. Consult with a broker before applying, in order to determine how much you may be eligible to borrow and at what kind of rate of interest.
Q: What are the most popular uses for commercial bridging loans?
Investors and property developers often use commercial bridging loans to purchase properties at short notice, perhaps at auction. They can also be used to cover the costs of renovating and improving commercial properties, in order to then be sold on at a profit. Many businesses use bridging loans to cover temporary cash flow issues, purchase essential equipment and fund expansions or relocation projects. A commercial bridging loan can be used for any legal purpose whatsoever, one of the facility’s biggest points of appeal.
Q: Who can qualify for a commercial bridging loan?
Most types of commercial bridging finance are issued primarily on the basis of security. If you have assets of value the lender is willing to accept to cover the costs of the loan, your application will most likely be accepted. This includes applicants with a poor credit history, no formal proof of income or even a history of bankruptcy. With bridging finance, the value of your assets and your current financial situation are more important than your financial history. For more information on commercial bridging loans, visit the bridging loans website