Find a bridging loan

Let’s say you’ve found the perfect premises for your new salon, you put in an offer and you’re ready to move. Only one problem: you’re stuck in a chain. To be able to pay for your new salon, you need to sell your current premises, but your buyer is waiting on their buyer, and their buyer is waiting on another buyer, and the chain goes on and on. If one buyer’s commercial mortgage is rejected or if someone somewhere along the chain pulls out, you lose your salon. In this instance, a bridging loan may help by enabling you to complete the purchase on the property and then repay the loan further down the line once you complete the sale on your own property.

Once you’ve found a property you’d like to purchase, the bridging loan process may look a little like this:

• Search: Find a lender, loan, and set of conditions you’re happy to go ahead with. A broker like Funding Options by Tide may be able to help with this.

• Apply: Once you’ve found a suitable lender, you’ll need to gather together and submit relevant documentation. This might include information on the property, a business plan, cash flow projections, and an exit strategy.

• Approval: If the lender is happy with all your documentation, they may follow that up by running a credit check on you or your business. Be aware, this may add a hard search to your credit score.

• Purchase: Once approved, the funds will be released to you and you, in turn, pay the seller.

• Repayment: You may be asked to pay towards the interest on a monthly basis, or the interest may all be rolled up at the end with the final payment. Some lenders also offer a hybrid option. Usually, once you’ve sold a previous property, sold this property on, received a mortgage, or come into another form of funding, you repay the bridging loan in full, along with any fees and interest.

Though these loans offer quick access to funds for property purchases, they can also come with higher costs when you compare a bridging loan to a traditional mortgage, making timely repayments critical. These costs can include:

• Higher monthly interest rates (upwards of 20% or more)

• Additional admin, legal, and exit fees

• Potential risks to your property if repayment is not met

Eligible borrowers funding property investments can be eligible for loans of up to £20M. In most cases, you can borrow up to a loan-to-value (LTV) ratio of 75% of the value of the property.

Eligibility for bridging loans often depends on the strength of your “exit plan” – aka, your strategy for repaying the loan and interest at the end of the lending term.

A solid exit plan must show lenders you have a clear path for moving on to a more permanent source of financing, such as via a commercial mortgage or funds coming in from an unfinalised sale of property.

Examples of businesses that commonly leverage bridging loans include:

• Property developers: Bridging loans simplify purchasing land, financing construction projects, or renovating properties before resale, helping property developers seize lucrative opportunities swiftly.

• Real estate investors: Real estate investors can use bridging loans to secure properties at auctions or take advantage of time-sensitive deals, allowing them to expand their portfolios and maximise returns.

• Small businesses & startups: Startups or small businesses often require immediate capital for various purposes like equipment acquisition or purchasing new commercial premises. 

• Entrepreneurs: Bridging loans can assist entrepreneurs in bridging financial gaps during expansion phases or securing new business storefronts. 

Though bridging loans offer quick access to funds for growing businesses, they also come with their own risks, including the risk of foreclosure or execution over a secured property, making timely repayments critical. They come with higher costs and increased interest rates too. Consider carefully how a bridging loan will impact any future mortgage applications. 

It’s important to be very careful when leveraging any form of short-term funding, as in this case, you’ll be expected to repay quite a large sum of money in a shorter period of time than, say, a mortgage. Contact us for support if you ever face difficulties making your repayments.

Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk

Start with carefully considering your personal circumstances. Is a bridging loan really the right solution for you and your business? Would you be better served taking out a commercial mortgage or buy-to-let mortgage?

Once you’re absolutely positive you’d like to go ahead with short-term funding, compare each lender to decide which you prefer. Don’t just look at the interest rates offered, although those are important. Consider also the terms they’re offering, the length of time, and look closely at what would happen if you fail to meet your stated repayment schedule. Make sure you understand whether or not they’re asking for a personal guarantee and what the impact could be to your credit score.

If you find an option you’re completely satisfied with, either apply via the lender or use a broker like Funding Options by Tide.

You may still be able to get a bridging loan with bad credit, particularly as bridging loans are secured loans and the collateral makes them a little less risky in the eyes of lenders. However, you may be provided with fewer options and you might be charged higher interest rates. Consider trying to improve your credit score by maintaining regular repayments, clearing any old debts, and keeping plenty of distance between your credit limit and your credit usage.

An exit strategy is an essential part of applying for a bridging loan and it is often what lenders will assess you on. An exit strategy outlines how you plan to repay the loan within the allotted time period.

To put one together, start with how you plan to repay the loan – for example, you could be planning to take out a mortgage on the property once it’s in your hands, or perhaps you intend to sell it off once renovations are complete.

Next, set milestones and a timeframe. How long will all of that take you? What will you do if things go wrong, for example, if a builder falls sick for a few weeks, will you still be able to repay your loan?

Then, outline how much you need to borrow, how much you intend to make, and how much you can put up yourself. You’ll also want to include your deposit amount.

Finally, gather together any supporting evidence and include it in your exit plan. This might include contracts with construction companies, negotiations with future buyers, or property valuations.

From application to the funds being released, they usually take anything from a few days to a few months.

Only you can answer that question, but do remember due to their short term nature, bridging loans carry increased risk. Consider all your bases and spend some time thinking about what you’d do if something goes wrong.

Usually, you’ll need a deposit of approximately 25% of the property you’re planning to acquire. It is possible, in some circumstances, to forgo this deposit, but it’s not recommended as you’ll likely be subjected to higher interest rates and less favourable terms. If you do decide to enter into an agreement like this, consider speaking to a financial consultant to ensure you understand all the risks.

Improve your credit score, build out a strong exit strategy, and leverage a bigger deposit.