The demands of modern commerce force businesses to remain light on their feet at all times; being over-committed in any aspect of your business can be highly restrictive for any company, and staying flexible is key to success. A business that intends to adapt to changing circumstances needs a source of finance which can change with them, and bridging loans make an excellent choice for borrowers in all sectors including office and light industry.
This article will cover the basics of bridging finance as well as the ways in which it enables businesses to stay flexible with their borrowing. We’ll discuss some of the most important aspects of borrowing through bridging, and how this can help companies who need a reliable yet adaptable source of funding. It’s important to remember that just as with any other financial product, bridging loans can be expensive if improperly used; interest is charged monthly rather than annually, so businesses must be aware of exactly how these costs will affect them. Before seeking out a bridging loan, business owners must consult a financial advisor who can assess whether bridging finance is the correct solution or not.
Bridging loans are used to secure property before a mortgage can be taken out on it. They are ideally suited to kick-starting a purchase or project whilst other long-term solutions are put in place, because bridging finance can be arranged much more quickly than a mortgage; while mainstream banks take many weeks to agree to (or reject) a loan application, a bridging lender can usually tell you immediately whether they’ll approve the loan or not. Funds are more often than not made available within a week, and the purchase can proceed immediately - there’s no lengthy waiting periods and no stacks of paperwork to go through; a simple valuation is all that’s needed.
This can be vital for businesses which need to purchase additional premises or equipment, and need to acquire additional funding in order to do so. The ability to act quickly and decisively is so often key in negotiations, and a company that can set out concrete terms for a purchase in a short space of time is likely to succeed with its bid. Speed is also key within the property development sector, and buyers who can put together a finance package in a short space of time are well-placed to submit an attractive purchase bid.
Bridging finance for office and light industry can be obtained in many different forms, and one of the key aspects of these types of loan is the security which is offered by the borrower. A bridging loan is a form of secured finance: this means that the borrower uses an asset as security for the loan, more often than not the property they’re purchasing with it. Should they fail to repay the loan, this asset will be reclaimed by the lender and sold, in order to recoup their money. Because bridging loans are asset-backed they can be obtained for a relatively high proportion of a property’s purchase price - there’s no upper limit to the amount that can be borrowed, in most cases, so buyers can use bridging loans to finance the purchase of any property.
Bridging loans which are secured against the property being purchased are almost always “first charge” loans. This means that the lender is first in line to claim their money back from the property. However, this is not the only form of security available, and borrowers can also offer charges against property that’s already being used as security; a property developer might decide to secure a bridging loan against another one of their properties that’s under mortgage, in order to gain a higher total loan amount. Because the asset is already under finance, the bridging lender won’t be first in line if they need to reclaim their money; the mortgage provider will claim their money back, and the bridging lender then gets what’s left. This is riskier for the lender, and typically “second charge” security is only used to help top up an existing first charge loan. By combining a first charge on one property with other second charge security, borrowers can obtain a larger loan from their lender, reducing the amount of capital they must contribute themselves.
One of the most powerful uses of bridging finance is to move forward and complete a purchase quickly, which can be exceptionally useful for commercial purchases. However, bridging lenders are also not subjected to the same tight controls as mortgage providers are, which means that they can provide much more flexible lending options to their clients than banks can. Crucially, this enables bridging lenders to amend and adapt their loan packages to suit the needs of borrowers in many different industries; they can work together with their clients to come up with a bespoke lending solution that mirrors their needs.
Generally speaking, the terms and conditions of a bridging loan can be altered pretty freely in the initial consultations; while bridging lenders have their own preferred methods of lending, it is usually possible for borrowers to arrange a combination of different term lengths and fee structures in order to maximise the benefit the loan provides them with. For example, borrowers can generally choose to defer payment of the arrangement fees and interest until the end of the loan, opting for a single lump payment rather than ongoing monthly payments. This minimises the monthly costs of servicing the loan and reduces its impact on the borrower’s day-to-day finances. While most bridging lenders will also set out their general term lengths, it’s also often possible to arrange for a longer (or shorter) loan as necessary, and some lenders will even allow borrowers to opt for an “open” bridging loan (i.e. one with no fixed repayment date).
The flexibility and adaptability of bridging finance makes it an ideal choice for borrowers in any sector, and office and light industry owners stand to benefit from the benefits it can impart.
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
Commercial bridging loans are, as their name implies, bridging loans that are secured against commercial property.
To qualify for a commercial bridging loan the overall use of the property being used as collateral will need to be at least 40% commercial. For example, if the property is a rental unit with a flat above the commercial part of the property would have to represent more than 40% of the total property. Furthermore, most lenders would also insist on a separate entrance to the flat.