Commercial bridging
Find out how businesses can get from one side of a sale to the other with fast, short-term funding.
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What is commercial bridging?
Commercial bridging is a type of short-term loan used by businesses to cover immediate funding gaps. Typically, it's used to "bridge" the time between when you need the money and when you can secure a longer-term funding option, or when you're expecting better cash flow.
Let's say you need to buy a new property for your business but your current space is still waiting to be sold. The funds from selling the old one are critical, but you don't want to wait months for the sale to go through. A commercial bridging loan lets you to buy the new property now and pay it off once the old one sells.
Unlike long-term loans from banks, commercial bridging loans are designed for quick access to cash with short repayment terms, usually between 6 to 18 months. The terms can often be more flexible than traditional loans, which can be helpful in fast-paced business situations.
Tip: You can also use a bridging loan for financing tax liabilities or another pressing debt while another finding options becomes available.
How commercial bridging works
A commercial bridging loan works by securing the loan against property or assets you own. So, if you own a commercial building, you can use it as collateral to secure a loan. The lender provides the funds, and you pay them back with interest, typically within a short period.
The main thing to note here is that bridging loans are usually repaid through the sale of a property or via the cash flow from your business. If you can't repay the loan by the agreed date, you may have to pay higher fees or interest, so it's essential to have a solid plan in place.
Imagine you're a property developer with a fixer-upper in mind but not enough cash on hand until another project is complete. A commercial bridging loan could help you buy the property, refurbish it, and then sell it at a profit, repaying the loan when your other property sale goes through.
When to consider a bridging loan
Bridging loans are perfect in situations where you need fast access to capital, such as:
- Buying a new commercial property before selling your current one.
- Covering short-term cash flow issues, like paying suppliers or staff while waiting for payments from customers.
- Seizing time-sensitive opportunities, like a property auction or a special business deal.
The key advantage of commercial bridging is speed. Commercial mortgages can take weeks or months to process, while bridging loans are approved quickly, sometimes in just a few days. This is crucial if you're in a situation where time is of the essence.
Tip: If the loan presents a high risk to the lender, there may be personal guarantees required from the owners or directors of the business. This can work out expensive if you're unable to repay the loan through the business.
The costs of a commercial bridging
As with any financial product, commercial bridging loans come with costs. Interest rates tend to be higher than traditional loans because they're short-term and involve more risk for the lender. But the rate you're offered will depend on several factors:
- The amount you need to borrow.
- The value of the property you're using as collateral.
- The length of the loan term.
- Your credit score and financial history.
Other costs might include arrangement charges, valuation fees, and early repayment charges if you pay the loan off before the term ends. It's essential to factor in all these costs when deciding whether a bridging loan is right for you.
Tip: First-charge bridging loans are when they're secured against a property with no other loans against it. This usually means you may be able to borrow more at a lower rate than a second-charge bridging loan.
Summing up
Commercial bridging loans are a helpful tool for business owners who need quick access to capital for short-term needs. Whether you're looking to buy a property, cover a temporary cash flow gap, or seize a time-sensitive opportunity, a commercial bridging could be the solution.
Just be sure to weigh up the costs, including the interest rates and fees, to make it's the right choice for your business.
Frequently Asked Questions
What types of property can I use a commercial bridging loan for?
Bridging loans can be used for a wide range of commercial real estate, including office buildings, retail spaces, warehouses and industrial properties, multi-use buildings (such as those with both residential and commercial elements), as well as property development sites or land for future commercial use.
Can I get a commercial bridging loan if I have bad credit?
Yes, it's possible, but you may face higher interest rates. Lenders might be more concerned with the value of the security property than your credit score.
Whats the difference between a closed and an open bridging loan?
A closed bridging loan has a fixed repayment date, with a clear exit strategy in place, such as a property sale or mortgage approval. An open bridging loan offers more flexibility, allowing the borrower to repay the loan without a set date, but usually comes with higher interest rates due to the increased risk.
How quickly can I get the funds from a commercial bridging loan?
One of the key advantages of bridging loans is their speed. Depending on the lender and the situation, you could get the funds within a few days, although this can vary.
What's a semi commercial bridging loan?
A semi-commercial bridging loan is meant for properties that don't fall neatly into the residential or commercial bracket. These might include a flat above a pub, bed and breakfasts, or multi-purpose units that house dual purpose live-work spaces.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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