Commercial Bridging Finance

How long does it take to get a commercial bridging loan?

It can be quite fast. Normally, it takes two to six weeks to get things done. It can be much quicker if everything is in place or if there’s a level of urgency. Generally, speed equals cost.

To get things done a lot quicker tends to be more expensive.

The timing also depends on complexity and the structure of the deal itself. The more complex it is, the more due diligence the lender may want to do. So it’s not instant, but it is quick.

What if I have bad credit? Can I still get commercial bridging finance?

You can, yes. Lenders are more focused on the proposition in front of them – what are you looking to borrow, what will you do with the money, what’s your exit strategy?

They take into account your credit position and credit history. If you have really bad credit and a strong history of not paying credit back, lenders can say no. But with a strong proposition and good security, there’s still potential to get the deal across.

The cost you pay will reflect the risk the lender is taking. If you have bad credit, you may end up paying more on that deal. Poor credit won’t shut you out, but it will cost you more.

Do I need an exit strategy?

Your exit strategy is how you plan to repay that finance. If you’re taking the loan out for six months, how will you pay that back, and what’s the likelihood of that plan coming to fruition?

Often the strategy is selling the property itself. You’re taking the finance out to purchase property, redevelop it into commercial premises from a residential – or the other way around. You’ll add value to it and sell the property to pay back the finance and take your profit.

Another exit is to refinance the property. Again, you’ve purchased it with a bridge for speed, you’ve added some value by doing some work on it. Then you can go to a more standard commercial arrangement or mortgage at the higher value, releasing funds to pay it back.

When selling property, lenders want to see the demand for property of that type in the area. If you’re creating a commercial property from residential, is it in the middle of a residential street where no one’s going to buy – or vice versa?

When you refinance, they’re going to check how likely you are to get the refinancing. Do you have an Agreement in Principle in place? Will the refinance lender accept the proposition?

Those are the two most common strategies we see, but you could also be raising funds from another source, where that deal is taking longer to come through. You could be selling another asset to repay this finance.

The exit strategy is just as important as the proposition you’re putting in front of the lender. Without a clear plan and realistic exit, lenders won’t go ahead. This isn’t something you can work out later. You have to think upfront and be accurate with the figures.

What other costs are involved with commercial bridging finance?

It’s short-term lending, so costs are higher than on standard lending. There are more fees and they also tend to be higher. People often just think about the interest they’re going to pay – and that interest can be serviced. You can either pay interest during the loan term or add it to the loan itself and repay it with your exit strategy.

Interest is important, but you also need to think about the arrangement fees – they could be anywhere from 1% to 2% or more, depending on the risk involved.

Valuation fees are also involved, and more detailed valuation is usually required on the property you’re refinancing. That tends to cost more than residential valuations. You’ll also have to cover legal fees – both yours and the lender’s, so you need to budget for those.

Sometimes there are exit fees, particularly if you want to exit earlier than originally planned. If you take a loan for 12 months and you’re ready to sell after six months, there may be an exit fee to pay.

Finally, there are broker fees. It’s quite complex to structure a deal for commercial bridge finance companies. Broker fees therefore tend to be higher for these deals.

How does the application process work? How can a broker help?

It’s not as simple as just applying to your bank. Commercial bridging is a specialist market.

A lot of commercial bridging lenders only work through intermediaries and brokers because it’s easier for them. So, get in touch with a broker for an initial chat about your plans, details of your proposition, your borrowing needs, your property, and that all-important exit plan.

We’ll give you an initial indication as to the likelihood of you moving forward. Then, the broker sources a lender to fit your circumstances and proposition. Not all lenders take on all types of bridging. Some lenders specialise in particular types of finance.

You might have an agricultural plan and so it’s better to talk to a lender that specialises in agriculture, for example. Once that’s all ready, you’ll get a deal proposition or heads of terms document to show you exactly what the fees and costs will be.

Once you’re happy with everything, we submit the application and get all the documents in place. That’s when all the valuation and legal checks happen. It’s similar to a standard mortgage process, but it can happen a lot quicker.

The key thing we offer as a broker is matching you to a lender who accepts your profile and proposition. Sometimes we can negotiate rates and terms with lenders, particularly if a deal is really good.

We then manage the process with your solicitors, valuer and lender. We always recommend finding a solicitor who’s experienced in commercial bridging finance – because not all solicitors deal with it all the time. There are many nuances to the legal frameworks around it.

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