When it comes to obtaining short-term financing, bridging loans are a popular option for many residential property buyers and investors. But they can also be used for commercial purposes too. So what exactly are commercial bridging loans, and how do they differ from standard bridging finance?
In the body of this text we will take a more considered look at commercial bridging loans, what they are and how they can be used. If you are considering taking out bridging finance hopefully the information contained in this blog post will help you make the choice that best meets your particular requirements.
What Is A Commercial Bridging Loan?
A commercial bridging loan is essentially a type of short-term lending facility secured against commercial property or land. Just like a residential bridging loan, it “bridges the gap” by providing temporary financing, usually while longer-term funding is being arranged. There are a number of different reasons why people apply for commercial bridging loans whether that is to buy a new property or to help with business expansion. Among the types of purchases people make with commercial loans are:
- Commercial property (offices, industrial units, retail premises etc.)
- Semi-commercial property (apartments, mixed-use buildings etc.)
- Land and development sites
- Businesses and operating companies
Essentially a commercial bridging loan offers borrowers a quick way to raise capital against their assets for a multitude of purposes.
What Are the Main Uses of Commercial Bridging Loans
Some of the key uses of commercial bridging finance include:
- Funding the purchase of a commercial property or premises
- Financing business growth, expansion or acquisitions
- Paying tax liabilities, legal fees or other unexpected costs
- Raising capital to take advantage of investment opportunities
- Refurbishing, renovating or converting commercial buildings
- Short-term working capital or cashflow support
- Purchasing land or development sites prior to development funding
As with residential bridging, the temporary nature of commercial bridges means they are designed for short-term usage rather than long-term lending needs.
How Do They Differ From Residential Bridging Loans
On the surface, commercial bridging loans operate in much the same way as residential versions – providing fast access to borrowed capital that must be repaid within 3 to 24 months.
However, there are some key differences to be aware of too:
- Loan Amounts: Commercial bridging loans tend to be for higher amounts
- Repayment: Repayment often structured via selling the asset or exiting the investment
- Fees: Arrangement fees and interest rates may be higher than residential rates
- Criteria: More focus on the commercial viability and potential of the asset
Rather than focusing just on the borrower’s personal circumstances, commercial bridging lenders place more weight on the feasibility of the project/investment itself.
Is The Criteria The Same for a Commercial Bridging Loan
While the core lending criteria around exit strategies and security are similar, there are distinct differences in how residential and commercial bridging loans are assessed:
When you apply for a Residential loan the lenders will look at:
- Proof of income/employment
- Credible repayment plans (e.g. property sale)
- Valuation of residential property
Whereas in the case of a commercial bridging loans lenders will focus on:
- Experience in commercial sector
- Asset/investment potential
- Clear business plan
- Valuation of commercial assets
- Company accounts and financials
Many commercial bridging lenders will also only work with investors, landlords and property developers rather than individual borrowers.
What are the Benefits of Commercial Bridging Loans
There are a number of key advantages to using bridging finance for commercial projects, purchases and refinancing:
- Speed: Approved much faster than long-term business/commercial loans
- Flexibility: Fees and interest can often be rolled into the loan amount
- Short-Term: Bridges the gap while putting long-term finance in place
- Asset-Based: Uses bricks-and-mortar commercial assets as security
- Growth Funding: Allows businesses to move quickly on opportunities
This combination of speed, flexibility and secured short-term financing is what makes commercial bridging loans extremely valuable for many people in business world.
Who Are Bridging Loans Suitable For?
Because of their flexibility commercial bridging loans are suitable for people from all areas of business. However, they are most commonly used by the following people:
- Property developers and investors
- Businesses seeking to expand premises
- Commercial landlords and building owners
- Those acquiring commercial assets/investments
- Companies needing fast access to growth capital
In general, they are aimed at those operating within commercial property, investment and business sectors rather than individual consumers.
Maximum Loan Amounts
There are no definitive maximum loan amounts when it comes to commercial bridging finance, as this is assessed on a case-by-case basis. However, many commercial bridging lenders will happily consider loan requests up to £50 million in value for suitable projects and assets. Loans over this amount may require additional underwriting. As with any type of finance the amount a lender will be happy to approve will be dependent on your ability repay, which in the case of bridging loans is usually the security you offer and your exit strategy.
In summary, commercial bridging loans provide businesses, developers and commercial investors with a way to rapidly secure short-term lending against their commercial assets and investments. While sharing similarities with residential bridging, commercial versions are tailored more towards assessing the viability of the commercial opportunity itself.
For those needing fast, flexible financing to fund commercial property purchases, refurbishments, expansions or developments, a commercial bridging loan could be the ideal solution. With significant lending amounts available and a focus on asset-based security, they open the door to funding major commercial projects quickly.
If you are looking for any type of commercial bridging finance the team here at Pyxis Capital can help. With access to a large panel of specialist lenders we can help you find the finance you need to help your business thrive. Contact us today for more information!