Commercial bridging loans are a financial facility used for short-term borrowing that helps businesses in different situations, financially.
- What Can They Be Used For?
- Who Can Get A Commercial Bridging Loan?
- How To Apply For a Commercial Bridging Loan?
- What Is Security That Is Needed For The Loan?
- Regulated and Unregulated Loans
- Final Thought
What Can They Be Used For?
Individuals and businesses can use commercial bridging loans for many different reasons including purchasing property, cash flow, business expansion, property developments and business investments.
- Purchasing property
A commercial bridging loan can be used to get money to purchase a commercial property. It might be that the property is for business use or to sell on which either way, would make a profit and then be able to pay the loan back within the short amount of time.
For businesses, it might be that they need a commercial property buying for their offices etc. to help expand their business.
When purchasing a commercial property, they can use it as either buy-to-let or buy-to-sell. With a buy-to-let property, this is when someone is buying a property, renting it out to someone or a business.
On the other hand, a buy-to-sell property is where a property is purchased, with the intent of doing it up and sell it at a profit.
These are usually mortgages that are taken out to buy the property in the first place. However, with the option of a commercial bridging loan, the money can be borrowed to buy the property and then do what you want with it, as long as the loan can be paid back within the time agreed.
It is usually a better option, as it’s quick and short-term and therefore, don’t have the long-term commitment of having to pay it back for years like a mortgage does.
- Property Development-
The short-term, commercial bridging loan can be used for property development.
The money can contribute towards the development project, adding value to it. Once the property development is complete, it can then be sold or rented out, and the money from this can be used to pay back the loan.
Buying land for development is also a viable use.
This can be for individuals or businesses that are property developers.
- Renovation/ restoration projects-
A loan can be used to help contribute towards the renovation or restoration of a property, as it can add value to it. Once the renovation project is complete, the individual or business may go on to selling it, making a profit and then using the money to pay the loan back.
On the other hand, it might be that for a business, they need some renovation or restoration work doing to improve their business property, making it a better place for their staff to work in or even add more space so more people can work there at once.
- Business expansion-
Commercial bridging loans can be used to help with business expansion by a company. If the company are wanting to expand on their workspace, hire more staff, invest in more technology and equipment, then the loan can be used to help provide this.
Things such as buying stock and equipment for a business to help them grow and expand can be an expensive investment, so a loan can help by paying it in full and then the company gradually paying the loan back over the year.
With buying newer equipment and stock, it can help to improve the quality and work produced as well.
- Business investment-
If a business is wanting to invest in making more money potentially, they can do this through stocks of the company and other companies.
If this is a route that a business may choose to go down, then the loan can help pay towards this and then as a result of it, they should make more money, so the loan is covered.
For businesses, it is essential to keep the cash flow going and to try not to disturb it in any way, as this can affect the business.
If a business is needing to pay a VAT bill, then a loan can be a good idea to help pay this. This way, the company is using the loan money, rather than the business money, keeping the cash flow going and causing no disruptions to the business.
Then over the year, the company can pay back the loan from the profits they make. Another example can be if a customer hasn’t paid a large invoice, this can affect the cash flow, and therefore, a loan can be taken to keep the business on its feet until the invoice is paid, which the loan can then be paid back as well.
Who Can Get A Commercial Bridging Loan?
Commercial bridging loans are available to both individuals and businesses and can be used for any of the reasons above. If you’re in need of a fast and short-term loan that ranges from £100,000 and up to £100 million, then it’s a great option.
How To Apply For a Commercial Bridging Loan?
Like any other loan, a commercial bridging loan works in the same way in terms of the application.
When looking at this type of loan and if it’s something you could use, always take a look at other options as well to make sure you’re using the best one for your needs.
Firstly, you would need to find the right lender for you that will give a commercial bridging loan for your needs.
Always research the lenders to make sure you can trust them. Once you’ve found the right one to suit your needs, enter the application process, ensuring you have security, documents and an exit plan at the ready.
During the application process, there will be discussions with the lender on how much they are willing to lend, the payment terms and additional fees etc. Once you’ve come to an agreement on everything and have been approved for the loan, you will need to sign for it. This is signing to agreeing to the loan and the terms.
Once this is all complete, you will receive the money in a few days and can start using it for the purpose that you got it for. It’s as quick and straightforward as that!
What Is Security That Is Needed For The Loan?
When thinking of getting a commercial bridging loan, one thing needed is security from the equity in assets.
This ensures the lender that if anything was to go wrong and the company couldn’t pay the loan back, then they can use the assets in security, so they don’t make a loss.
This is important, especially with loans that are of high value, as the lender could be giving out a significant amount of money and risking potentially not getting that back.
This is why they take assets and use them as security, so if the loan wasn’t paid back, the assets could be repossessed by the lender, ensuring the lender and its brokerage stay safe from a loss of money.
Some of the things that can be used as security for commercial bridging loans include:
- Land with and without planning
- Machinery and equipment
Along with properties that the business might have as an asset and can be used, things such as cars, equipment, jewellery etc. It depends on the lender to determine what they will accept as security.
Usually, with these types of loans, the lender will evaluate the security offered at first and then decide how much they are willing to lend.
Regulated and Unregulated Loans
Regulated and unregulated loans are terms used for commercial bridging loans.
The Financial Conduct Authority regulates a bridging loan if the security is the borrowers or family’s private home. With a regulated loan, it means that any incorrect advice or miss-selling protects consumers from a broker or lender. An unregulated loan doesn’t offer this protection.
Regulated loans would be safer, due to the fact they give you protection and supervision when getting a loan and making sure the lender isn’t trying to get more money out of you than needed.
As a regulated loan has this extra protection and supervision, brokers and lenders have to be precise and clear with the information they give out whereas, with an unregulated loan, this isn’t always the case.
When it comes to a commercial bridging loan, this will automatically be unregulated, and it’s not something you can choose when selecting a loan. This means that when getting a commercial bridging loan, you don’t have that extra added protection or supervision in this industry by the FCA.
However, the way the FCA see this is that those getting a commercial finance solution are probably not as vulnerable as those getting a residential loan. Most bridging finance options are unregulated.
Some lenders may not be 100% clear and ethical when providing information and talking about the risks of taking out an unregulated loan.
As large amounts of money are taken out with a commercial bridging loan, research and thorough checks will likely be done on the broker or lender beforehand to ensure they’re safe to use and not misleading on any information they give out.
For more information contact Property Finance Partners on 020 3393 9277 or email us [email protected]