A guide to commercial & business bridging loans

By Brian Rubins 18th August 2020

If you’re a business looking for a short-term financing solution, you might be interested to learn more about commercial bridging loans. There are a few things to consider when it comes to business bridging loans: they’re for business purposes only and largely unregulated.

Read on to learn more about these bridging loans, how you can use them, and their risks.

What is a commercial bridging loan?

A commercial bridging loan is a short-term finance secured against commercial property. A commercial bridging loan, or bridging finance, helps businesses access quick cash for business purposes, whether buying new office premises, solving short-term cash flow problems, or investing in new markets.

Are bridging loans available to businesses for commercial projects?

Yes, a commercial bridging loan can only be taken out for business purposes. If you want to apply for a bridging loan for residential purposes, you cannot apply for a business bridging loan. These kinds of loans can be taken out to buy a new commercial property, help balance cash flow in your business, or support your business financially when a property chain has broken.

Can small-to-medium businesses take out a bridging loan?

A bridging loan can be a good option for SMEs who need an injection of capital for business purposes when time is of the essence. To get a business bridging loan as a small or medium business, the lender isn’t too focused on your credit history, so you can still get a bridging loan if you have poor credit. All the lender is interested in is if you can repay the loan as stated in your exit strategy.

Before you dive headfirst into a bridging loan, it’s a good idea to look around at all the financial products available to you. Bridging finance can be quite expensive, so a standard business loan or a credit card with an interest-free period might be a better option if you need a small amount of cash.

Can corporations and multinational businesses use bridging loans?

Yes, you can. As long as they have a satisfactory exit strategy, any company can usually find a lender willing to lend to them. So whether you’re an individual, corporation, partnership or limited company, you can apply for commercial bridging finance.

What can I use a Commercial bridging loan for?

There are many things you can use your commercial bridging loan for, here are the most common ways to use them.

Commerical Property & Real Estate

As long as the property or land you plan to purchase is at least 40% for commercial purposes, you can use a commercial bridging loan to purchase it. A commercial loan like this can help you move fast when buying new premises or securing a new property in general. You can also apply for bridging finance to help you renovate or re-develop a property.

BTL Property

If you’re a landlord and you plan to purchase a property to rent out eventually, you can use your commercial bridging loan as part of a bridge to let finance agreement. These agreements include two products — the initial bridging loan and then a buy-to-let mortgage. The best thing is, you can apply for both a bridging loan and a buy-to-let mortgage in just one application, which is handy.

Capital Funds & Financing

Bridging finance isn’t only used to purchase or refurbish property. It can help give your business an injection of cash to help you balance out any temporary cash flow issues or just give you a lump sum to help grow your business. Remember, this finance is short-term (usually repaid within 12 months), so you might be best looking for different funding options if you need something longer-term.

Business Acquisition & Mergers

You can use commercial bridging finance for business acquisitions and mergers — so if you’re hoping to buy out a competitor or supplier, this option could be worth exploring. As long as you have an asset to secure the loan with, i.e. business premises or land, it’s likely you will be accepted for a bridging loan. Once you’ve got the loan, you can spend the funds as you wish for your business.

Are Commercial Bridging Loans safe?

They’re safe as long as you know what you’re getting yourself into and you have a well thought out exit strategy for repaying the loan. But, just like with all types of finance, bridging finance comes with its pros and cons. You can read more about the risks below.

What risks are involved with business bridging finance and how do I protect myself?

As bridging loans are short-term, you’ll need to ensure you can confidently repay the loan in total, along with interest, in the required time frame. In addition, the lender will carry out an affordability assessment; this is to reduce unaffordable lending.

It’s also important to note that the FCA does not regulate bridging loans for commercial purposes. This means you are not protected should something go wrong, i.e. you receive bad advice or missold the loan.

The best way to protect yourself is by reading the terms and conditions of the loan and taking out a loan that you can easily afford, whether your plan is to remortgage your property to repay the lender or sell the property after you’ve refurbished it.

Which lenders specialise in Commercial Bridging Loans?

The online marketplace is thriving with specialist bridging loan companies just waiting to help you secure business bridging finance. Its competitive nature means there are plenty of commercial bridge loan lenders for you to choose from.

Choosing a lender that specialises in this type of finance means you’re in safe hands, and the process can be much quicker than with other traditional lenders.

At BLD, we work alongside a panel of trusted UK bridging finance lenders — compare deals on our bridging loan directory.