Commercial bridging loan

What is a commercial bridging loan?

Commercial bridging loans offer businesses a way of financing the fast purchase of a commercial property. Borrowing these funds through a bridging loan might be necessary if quick access to their own cash is not possible.

To be eligible for a commercial bridging loan, the overall business use of the property has to be more than 40%. This means that a retail unit or office with a flat above can also use this form of finance. If over 60% of the property is for residential purposes then you might require a regulated bridging loan instead.

Bridging loans are only intended for a short period of time. After this point, the exit strategy is usually to move to a long-term mortgage. Landlords might move this to a buy to let mortgage, whereas other business owners might require a commercial mortgage.

When would you use a commercial bridging loan?

You can use a commercial bridging loan for most commercial or part commercial/part residential property purchases. There is usually a need for bridging when there’s a gap in financing a commercial property and buyers require funds quickly. Bridging loans can help to buy and develop properties or purchase properties for renovation or development.  Many investors choose to purchase properties such as shops, offices and semi-commercial properties using a bridging loan.

The most common use for a commercial bridging loan is to gain quick access to funds. For example, you might be looking to purchase a property but are yet to sell one that you currently own to finance the transaction. In order to act quickly, taking out a bridging loan can be a way to purchase the property without needing immediate access to your cash.

You will then pay the bridging loan back to the lender through the sale of the original property. Another repayment method is by using a commercial mortgage to refinance.

Commercial vs residential bridging loans

Unlike residential bridging loans, the majority of commercial mortgages are unregulated. This means that property owners are not protected by the FCA under the Mortgage Code of Business rules (MCOB). This legislation exclusively protects consumers and their own homes.

Before you start looking for a commercial bridging loan you should assess your situation and decide if it’s the best finance option for you.