Find a bridging loan

As you expand your business, you may encounter times when extra short-term funding is needed.

Well, if that day comes, you won’t be alone. An unprecedented £831 million in bridging loans was successfully processed in 2023. In fact, despite interest rates last year reaching a peak annual average since 2015, we still saw a record number of bridging loan transactions all-round, with the primary reason given for using bridging loans being to prevent collapsed property chains.

If you’re wondering what a bridging loan is, you’re in the right place.

Bridging loans provide a quick way to get working capital for purchasing property. With repayment terms of around 12-24 months or less, these short-term loans are suitable options for access to on-demand cash while you await long-term funding, for example, in the form of a commercial mortgage. 

Here’s everything you need to know if you’re considering a bridging loan for your business.

What is a bridging loan?

A bridging loan is a type of secured business loan used to bridge the gap between finding a property and securing funding, for example, by selling a previous property. Bridging loans can be used to:

• Buy property at auction

• Purchase land for development

• Invest in commercial property 

• Renovate existing property

They are short-term loans, generally spanning a period of up to 12 months and they usually come with higher interest rates when compared to a more traditional fixed term commercial mortgage.

Example: 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.

How do bridging loans work? 

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.

Types of bridging loans

Bridging loans come in all shapes and sizes. Here are a few of the options you may encounter:

• Residential bridging loans: Aids in purchasing residential property or developing residential land in the interim before selling an existing residential property. 

• Commercial bridging loans: Provides funds for purchasing commercial property (such as shops, offices, retail space, etc) and for refinancing commercial real estate. 

• Auction finance: Enables you to complete fast purchases on properties at auction, where payment is usually required before sourcing additional funding is feasible.

• Development finance: Designed to cover renovation, development, or construction projects, whether large scale or even already owned property.

• Open vs. closed bridging loans: Closed loans have fixed repayment dates, while open loans have no set repayment dates and must be paid in full within a set period (typically a year).   

• First vs. second charge bridging loans: Properties without other finance secured against them are eligible for first charge loans, while properties with existing loans against them qualify for second charge loans.  

• Fixed vs. variable bridging loans: Bridging loan interest rates can be fixed or variable. Fixed rates ensure predictable repayment amounts, while variable rates make the amount fluctuate. 

• IPO bridging loans: A much less popular option, this is used to cover the expenses of taking a company public until Initial Public Offering (IPO proceeds) become available. 

What can I use a bridging loan for?

Bridging loans are a suitable form of funding for several specific circumstances, including:

• Preventing or resolving a chain break

• Renovating an existing property to increase the rental value

• Purchasing land or property at auction

• Building a new property with the intention of closing a sale on the completed project within the next year or two

• Buying land to develop on

• Securing a desirable property while waiting for a mortgage to processed

• Buying new commercial premises before selling your current premises

• Converting or extending your commercial premises

• Investing in a property portfolio

• Paying relevant tax

• Funding a buy to let investment

What do bridging loans cost? 

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

How much could I get with a bridging loan?

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.

Who can apply for a bridging loan?

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. 

What are the benefits of bridging loans? 

Bridging loans can offer your business advantages for short-term funding, ensuring you have access to the working capital you need, when you need it.

These advantages include:

• Flexibility: Bridging loans provide flexible financing terms, accommodating a wide range of different business situations (such as property investments and renovations). 

• Speed: With a bridging loan, you gain rapid access to funds — most bridging loans applications are approved and distributed much faster than traditional mortgages. 

• High Limits: Thanks to being secured against an asset (i.e. property), bridging loans may be able to provide your business with larger sums of money than other, unsecured lending options. 

What are some of the possible risks associated with bridging loans?

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

How to find a suitable bridging loan

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.

FAQs

Find a commercial bridging loan with Funding Options by Tide

At Funding Options by Tide, we provide eligible borrowers with access to bridging loan options. Just tell us how much you need, and if you’re eligible, we’ll try to match you with a range of opportunities comparing loans across 120+ lenders. 

Find a bridging loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.