A bridging loan is a short-term, interest only loan, which is secured against property in much the same way as a mortgage or secured loan.
A bridging loan for small businesses are offered for a maximum term of 18 months, although some lenders will offer longer. Loans secured by first legal charge against your own home are restricted to a maximum term of 12 months. When taking out a second charge bridging loan for business purposes, the 12 month restriction will not apply.
The interest is usually added to the loan and paid as a lump sum when the loan is repaid. This is known as rolled up interest. Borrowers can choose to pay the interest each month, subject to proving that this is affordable.
A bridging loan can benefit a small business by giving them access to finance quickly.
As short-term bridging finance can be arranged quickly and with less onerous underwriting than other types of borrowing, you can access very competitive interest rates and flexible repayment options provided your exit strategy is fit for purpose. This short-term loan method of borrowing can be a great tool for small business owners looking to expand.
This allows decisions to be made quickly and with less time required to manage your application – especially when guided by a trusted bridging finance broker.
When a business owner is looking to purchase a property, a commercial property mortgage would usually be the most suitable product. There are exceptions to this, however.
Firstly, when the property being purchased needs heavy refurbishment or even change of use, a property refurbishment bridging loan would usually be more appropriate. This is because most lenders would not allow such heavy works to be undertaken on the property as part of the mortgage.
In this scenario, bridging finance would be taken out, the works completed and then the loan can be refinanced into a mortgage.
Where the works are going to result in an increase in the value of the property, you may also be able to borrow the cost of the works.
The second situation is when a transaction must be completed quickly. Commercial mortgage applications can take time and as such, they aren’t always appropriate when completion is urgent. This is common for auction purchases and when there have been issues with a mortgage application that means you must now complete quickly.
In both of these scenarios, it’s realistic to arrange a commercial bridging loan in around 14 days. These loans can also be used to fund bridging finance for land.
Where there is a need for a cash injection into your business and there is equity available, bridging finance could be an ideal option.
Unsecured business loans should also be considered; however, most lenders require a clear credit history and have strict lending criteria. As above, a commercial mortgage wouldn’t be appropriate where funds are required urgently.
By taking out a bridging loan and rolling up the interest, you would also benefit by not having monthly repayments to make. This can be particularly useful when cash flow is tight.
We can lend to the following:
We can offer loans from 1 month up to 24 months.
We offer loans across the UK, including England, Wales, Scotland and Northern Ireland. We offer specialist bridging loans for properties in London.
Yes, we’re able to offer bridging loans with adverse credit without issue.
We offer loans from £25,000 with no defined maximum loan size.
The maximum loan to value (LTV) depends on the security offered to the lender. We can offer the following:
As the monthly interest is usually rolled into the loan, affordability isn’t usually a primary factor in assessing the loan. Where your chosen exit strategy is reliant on income, the lender may want to verify that you have the income required to meet your new lenders criteria.
Where the security property is to be sold and interest is rolled into the loan, affordability doesn’t usually factor in to any lending decision.
Your maximum loan is calculated through the lenders maximum loan to value, alongside your chosen exit strategy.
The rate charged depends on the security offered to the lender. For first charge residential security, we can offer rates from 0.43% per month. Rates of 0.43-0.65% are usually realistic.
For second charge applications, a rate of 0.75-0.95% per month would be reasonable.
Where the security offered is a commercial property is likely to achieve an interest rate of 0.65-0.9% per month.
Yes, on top of the interest paid, you will also need to pay a number of other fees when taking out a bridging loan. The main ones are as follows:
These loans are usually offered by specialist bridging loan lenders. The loans offered to small businesses can vary significantly, and as such so can the lenders offering them.
2nd charge applications for business purposes, and those not secured against your own home are unregulated. Unregulated loans can be offered by regulated or unregulated lenders.
When looking to take out a bridging loan for your small business, there may be a number of ways to arrange the loan. If you already own the property that your business will be trading from, a commercial bridging loan could be the right option for you.
Alternatively, there may be cost savings to be made by taking the loan out against your home. This does come with higher risks should you fail to repay the loan, as your home may then be at risk.
When taking out a new bridging loan, it is recommended that expert advice is taken to reduce the risk as much as possible.
Bridging loans for business purposes aren’t regulated, unless they’re secured by first legal charge against your own home.
When looking to raise finance quickly, the most natural alternative to a bridging loan would be an unsecured business loan. These can also be arranged in under 2 weeks, although the lending criteria are much stricter, and some may not qualify.
Longer-term borrowing which is less urgent may be much cheaper using a commercial mortgage or secured business loan. Both take a number of weeks to arrange and offer longer terms but will come with much lower interest rates in most cases.
