Commercial Bridging Loan
It is estimated that approximately half of the commercial property sector is financed by borrowed funds. So you’re not alone if you want to finance your new commercial property purchase with a business loan, commercial loan, or short-term finance.
Thus, Commercial bridging loans become a more accessible form of financing. Bridging loans are more prevalent in the commercial market because they are the most suitable option for commercial borrowers and businesses.
We’ll explain everything you need to know about this type of financing in this guide. So you can decide if it’s right for your company’s needs.
What Is A Commercial Bridging Loan?
Small Businesses & start-ups frequently require assistance in financing a new property for the business. Commercial bridging loans can be used to purchase or renovate commercial and retail properties. Bridging loans are intended to help clients manage the time between making the initial payment and receiving cash flow – either from sales or a longer-term business loan. Some businesses turn to bridging loans and the best financial institutions can help enterprises find the best bridging loan for their needs.
What Can Commercial Bridging Loans Be Used For?
Let’s have a look at some cases where the commercial bridging loans can be used:
Invest in Commercial Property
Many people think of commercial property when they hear “bridge loan.” Business owners use bridge loans to capitalize on a hot property deal. Once the property is secured, the commercial bridge loan can be refinanced with a more affordable long-term mortgage.
Maintain a Business Before Acquisition
Commercial bridging loans can help distressed businesses keep running while looking for a prominent investor or acquirer. In this case, the company has an impending source of capital lined up (either investor funds or sale proceeds) as an exit strategy from the bridging loan.
Close Cash Flow Gaps
Business owners and companies can also use a commercial bridging loan to finance working capital and cover expenses. Utility bills, payroll, rent and inventory costs can all be covered by a short-term bridge loan.
Once you’ve met the criteria for bridging loans, the lender will most likely request a business plan or a description of how you intend to use the funds. They’ll want to know for example, whether you intend to use the funds for construction materials, how much you plan to spend, and on what.
Benefits of Commercial bridging loan for small businesses and semi-professionals
Bridging has become an increasingly popular way for businesses in the UK to raise capital. Also, bridging finance can be arranged quickly and with less stringent underwriting requirements than other types of borrowing.
- Valid for limited companies, Channel Island incorporated entities, and foreign nationals who may have difficulty obtaining high-street financing.
- Excellent for when you require money quickly.
- It has a wide range of applications.
- There are no hidden fees.
- Applications are decided based on the property’s value, not on your ability to make payments or the purchase price of the property.
Uses of Commercial Bridging Loan
Commercial bridging loans can be helpful, but taking care of the current market landscape will benefit your small business more. Here are a few examples of commercial bridging loans:
Buy a new office building
A commercial bridging loan can help you expand your business or increase your property portfolio. It could help you protect your deposits while meeting tight completion deadlines. Commercial assets frequently have a high net value, necessitating a large loan. For extensive loan inquiries, we have dedicated funding lines. Regardless of loan size, we can deploy these funds quickly and efficiently.
Going Semi-commercial
A semi-commercial property is a popular investment option when using a commercial loan. It almost serves as income protection against late payments. It can be an excellent place to start for new commercial property investors because they use semi-commercial properties to try to minimise potential risk by receiving income from at least two different sources.
Expand company assets
Renting out an office building, either floor-by-floor or as one sizable rental area can be an excellent way to increase company income by utilizing unused or newly purchased space. You could use a commercial bridging loan to buy a property and avoid conventional financing deadlines. With no early repayment penalties, the bridging loan can then be repaid at the most convenient time for the company.
Renovations
Property renovation can be an option for increasing the value of a home. You can redesign the property to increase curb appeal, refurbish individual commercial spaces, convert commercial to residential, sell the property after increased value, and more.
Auction Property
People frequently purchase at auction to unlock hidden equity in the rundown, unusual, or older properties with potential. Many properties in these circumstances opt for a lower rate. If you’re looking to refurbish or convert a property to resell or rent out later, an auction house may be the best place to find your next property investment.
Consider The Following About Commercial Finance For Your Small Business
- Why do you need money in the first place?
- In what industry do you work?
- The term: how long do you intend to keep the loan?
- How big is your company?
- How much money will you need to achieve your goals?
- What is your risk tolerance?
- How much money can you afford to repay each month?
After you have seriously considered all of these factors, you will understand where your business stands and the type of financing you require.
Lenders Of Commercial Bridge Loans
- Private money lenders
- Investment Companies
- Banks
- Debt financing
- Alternative lending institutions
- Qualifying For A Commercial Bridging Loan
Borrowers may find it easier to qualify for a commercial bridge loan than long-term financing.
Typically, commercial bridging loan lenders will require you to provide collateral for your loan. Furthermore, you will most likely obtain financing around 75-80% of the value for commercial bridge loans. So, the amount you qualify for will be determined by the property’s value for which you require the loan. Alternatively, you do not need to provide specific collateral for unsecured business loans.
You may also need at least two years in business, annual revenue and a particular credit score. Consider a borrower’s debt-to-income ratio, business plan, and repayment plans.
What Are The Rates, Fees & Expenses In Commercial Bridging Loans?
In commercial bridging, borrowers are responsible for paying expenses such as:
- Loan origination fee
- Administration fee
- Appraisal fee
- Escrow fee
- Title policy costs
- Notary fees
- Refinancing Of Commercial Bridging Finance
When a bridging loan is refinanced, the borrower obtains another loan to replace an existing finance facility. It could be with the same or a different lender. Refinancing with another bridging loan is known as a re-bridge and borrowers may need to do so for various reasons. They apply for a new bridging loan to repay their previous lender. A re-bridge is typically required when a client’s exit strategy has failed. It gives you enough time to plan a new exit strategy.
Considerations In A Bridge Loan Transaction
It is not uncommon for a private commercial real estate transaction to include some form of bridge financing from an investor’s perspective. When this is the case, three factors should be carefully considered by investors:
The Business Strategy: What are the plans for the real estate bridge loan proceeds? Will they be used for acquisition or renovation? Is repayment contingent on a quick lease-up of the renovated property? Is market data supporting the leasing assumptions? Is there enough time allotted by the sponsor to complete the renovations? Has the sponsor budgeted for extra time in case of delays? What is the LTV at the time of origination? Does the property have more debt?
Permanent Financing: What assumptions are used in the permanent loan? Are they consistent with commonly used market terms? Is the sponsor in possession of a term sheet from a permanent lender? What is the interest rate forecast for the bridge loan’s term? Has the sponsor conducted a “sensitivity” analysis to determine what interest rate would render the loan unfeasible?
Does the sponsor have prior experience with this type of financing arrangement? Is the sponsor’s relationship with permanent lenders established? Do they have a track record of doing deals with them?
The factors mentioned above must be considered to assess the risk that the commercial bridge loan will be unable to be refinanced when its term expires.
A bridge loan can effectively acquire a property quickly, improve it, and refinance into a long-term loan if the business plan is reasonable and the permanent financing assumptions are conservative.
Is Commercial Bridging Finance Right For My Small Business?
Commercial Bridging loans are essential financial tools for any small business owner. You can use them to deal with cash-flow issues and seize unexpected business opportunities. While rates and fees may appear to be prohibitive, weighing the actual cost of financing against the benefits of the action funding frequently demonstrates otherwise.
Summing Up,
UK property finance provides commercial property bridging loans ranging from £25,000 to £10,000,000, making them suitable for any size commercial property expansion or remodel. We can assist you in making your commercial properties work for you, whether you are expanding your current business premises, venturing into new pastures, or changing tack entirely.
Please speak with our dedicated bridging loans team for assistance with any questions you may have. Simply go to our website or call us at 0116-464-5544.
