A commercial bridging mortgage is a type of short-term loan secured against commercial property. It provides quick access to funds, enabling individuals or businesses to purchase or release equity from a commercial asset. These loans are particularly useful when traditional finance options are not feasible.
How Do Commercial Bridging Loans Work?
These loans are typically short-term and interest-only, with repayment periods often lasting up to 18 months. In some cases, lenders may offer longer terms. During the loan period, interest is usually rolled into the total amount and paid off at the end, which means borrowers often do not need to make monthly payments. This feature is especially beneficial for those who require immediate funding without the burden of monthly instalments.
Who Can Apply for a Commercial Bridging Loan?
Commercial bridging loans are available to both UK and foreign nationals, including individuals using onshore or offshore borrowing entities. The borrower can apply as long as the property securing the loan is located in the UK. This flexibility ensures that individuals and corporate entities can access the funding they need.
When Are Commercial Bridging Loans Used?
These loans are designed for scenarios requiring fast access to capital. For example, they are commonly used to secure properties at auction with tight completion deadlines. They are also employed when a commercial mortgage may not be accessible due to adverse credit or the need for refurbishment. Other uses include:
- Bridging the gap between purchasing and selling a property
- Funding new business ventures
- Financing property renovations or conversions
What Property Types Are Suitable for a Commercial Bridging Loan?
Commercial bridging loans can be used to finance a variety of property types, including:
- Offices and professional practices
- Pubs, bars, and restaurants
- Hotels, guest houses, and B&Bs
- Retail premises and business parks
- Warehouses, factories, and industrial units
- Care homes
- Semi-commercial properties
- Places of worship
This wide range of acceptable property types makes these loans versatile and suitable for numerous business needs.
Residential vs. Commercial Bridging Finance
The primary difference lies in the purpose of the property. Residential bridging loans are typically used for residential investments, such as buy-to-let purchases or refurbishments aimed at increasing property value for resale. Conversely, commercial loans focus on properties intended to generate income for a business. For instance, a borrower might purchase an office building or convert a residential property into a semi-commercial space. The presence of an income-generating element distinguishes commercial bridging finance from its residential counterpart.
Common Uses for Commercial and Semi-Commercial Bridging Loans
Here are some examples of how these loans are utilised:
- Purchasing a new office building
- Converting residential property into semi-commercial spaces
- Expanding company assets
- Renovating or converting existing properties
- Securing auction properties quickly
- Starting new business ventures
These scenarios highlight the practicality of bridging loans to enable growth and adaptability.
Why Are Commercial Rates Higher Than Residential Rates?
Commercial bridging loans often come with higher interest rates than residential loans. This difference is primarily due to the increased risk associated with commercial properties. Unlike residential assets, commercial properties can be harder to liquidate, making them a greater risk for lenders. To offset this, lenders charge higher rates to protect their investments.
Commercial bridging loans are an effective financial solution for businesses or individuals needing fast access to capital. They offer flexibility in terms of repayment and property types, making them ideal for short-term funding requirements. If you need a quick and reliable way to secure or release funds from a commercial property, this type of loan could be the answer.
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