Inspire Legal provides expert legal advice to ensure your commercial bridging loan meets your needs.
A commercial bridging loan is a short-term loan that is used to finance commercial property transactions. These loans are typically used to bridge the gap between buying a new property and selling an existing one.
Commercial bridging loans can also be used to fund other types of commercial projects, such as refurbishments or renovations, or to cover cash flow shortages.
There are two types of bridging loans: residential (regulated) and commercial (unregulated).
A residential bridging loan is when someone borrows money to buy a house they plan to live in. This type of loan is regulated, which means that the government has rules in place to make sure the person borrowing the money is protected.
A commercial bridging loan, on the other hand, is when someone borrows money to buy a property that they plan to use for business purposes. This type of loan is unregulated, which means that there are no government rules in place to protect the person borrowing the money.
In summary, the main difference between the two types of bridging loans is what the property will be used for, and whether or not there are government rules in place to protect the person borrowing the money.
What type of property can I buy?
Commercial bridging loans are broadly suited to any business property e.g.
Offices
Retail units
Warehousing and storage facilities
Pubs, restaurants and cafes
Cinemas, theatres
Manufacturing facilities
Educational facilities
Civic buildings
Transport depots, yards, garages
The only exception is buying a piece of land where there is no permanent building to secure the loan against, and there are no plans to build one.
How do commercial bridging loans work?
Commercial bridging loans work by providing the borrower with a lump sum of money that is secured against the property or asset being purchased. The loan is typically repaid within 3-18 months, once the property or asset has been sold, or the borrower has secured longer-term funding (e.g. a commercial mortgage).
The amount of the loan is usually based on the value of the property or asset being purchased, as well as the borrower’s ability to repay the loan. Commercial bridging loan interest rates are typically higher than traditional bank loans, reflecting the shorter-term and higher-risk nature of the loan.
Who can apply?
You need to be 18 years old or more and have a deposit of at least 20% of the property value (but typically more) to take out a commercial bridging loan. Each lender will have specific requirements and a broker can help by matching you to an appropriate lender and deal.
Applying for a commercial bridging loan
To apply for a commercial bridging loan, you will need to provide information about the property or asset being purchased, as well as details about your business and its financial history. The lender will also need to assess your ability to repay the loan.
The application process for a commercial bridging loan is typically faster than traditional bank loans, with some lenders able to provide funding within a matter of days. This can be helpful if you need to complete a commercial property transaction quickly.
Choosing a commercial bridging loan
When choosing a commercial bridging loan, it’s important to consider the interest rates, fees, and repayment terms. Some lenders may charge additional fees, such as arrangement fees or exit fees, so it’s important to read the terms and conditions carefully before agreeing to the loan.
It’s also important to consider the reputation of the lender and to make sure that they are regulated by the Financial Conduct Authority (FCA). This will help to ensure that you are dealing with a reputable lender who follows strict rules and guidelines.
Working with a reputable, specialist solicitor and broker who has access to a wide range of lenders, representative of the UK marketplace can help you. The broker will find you a deal from potentially thousands on offer, based on your needs and circumstances.
As well as knowing about available deals, a broker will have wider insights on other factors, such as lender service standards, lender reputation, underwriting processes and more.
Benefits of commercial bridging loans
Commercial bridging loans can provide a number of benefits for businesses, including:
Quick funding: Commercial bridging loans can provide funding within a matter of days, which can be helpful if you need to complete a commercial property transaction quickly.
Flexible repayment terms: Commercial bridging loans typically have more flexible repayment terms than traditional bank loans, which can help to ease cash flow shortages.
Access to larger sums: Commercial bridging loans can provide access to larger sums of money than traditional bank loans, which can be helpful for larger commercial projects.
No early repayment fees: Some lenders do not charge early repayment fees, which can be helpful if you are able to repay the loan earlier than anticipated.
Drawbacks of a commercial bridging loan
As mentioned above, commercial bridging loans are not regulated by the Financial Conduct Authority, so as a borrower you are not protected in the same way you would be if you were investing in a regulated mortgage or loan.
This means you should carefully consider if this type of borrowing is right for you and be certain you can afford to repay the loan. If you cannot, your property may be repossessed by the lender, in order to pay off your debt.
Bridging loans are typically more expensive than a mortgage. They are only meant to be used for a short period of time as a result. Make sure you know how you are going to repay the loan, by either taking out another form of long term borrowing (e.g. a mortgage) or by selling the property for a sum of money that will cover your debt.
Conclusion
Commercial bridging loans can provide a quick and flexible source of funding for businesses that need short-term financing.
When choosing a commercial bridging loan, it’s important to consider the interest rates, fees, and repayment terms, as well as the reputation of the lender.
By choosing a reputable solicitor, broker / lender and carefully considering the terms and conditions of the loan, you can help to ensure that your business has the funding it needs to succeed.
Contact the Inspire Legal team to learn more.
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