Business bridging loans: a guide for business owners

As a small business owner, you may sometimes find yourself in need of quick cash to finance a new property investment project, or cover a short-term cash flow gap. This is where business bridging loans come in. A business bridging loan is a type of short-term loan, secured against property that can help you access funds quickly and easily.

What is a business bridging loan?

A business bridging loan is a phrase that can be understood in a couple of ways. If you are looking for a bridging loan to invest in property, and you want to apply through a limited company, you might refer to your needs as a ‘business bridging loan’.

Or, you might need a bridging loan to bridge the gap between a business cost being paid out and income being received, which again you might refer to as a ‘business bridging loan’. Either are available, as long as the cost you are covering is for a legal purpose.

Bridging loans are usually a short-term loan, with a repayment period of between 3 -12 months, sometimes up to 18-24 months.

Bridging loans for commercial properties

If you are a small business owner looking to purchase a commercial property, you may be eligible for a commercial bridging loan. This type of loan is specifically designed to help businesses purchase commercial property quickly and easily.

Commercial bridging loans can be used to buy a wide range of commercial properties, including office buildings, retail spaces, industrial units, and warehouses. They are ideal for businesses that need to act quickly to secure a property, as they can be approved and funded in as little as a few days.

Bridging loans for investors applying through a limited company

If you are an investor looking to purchase a property through a limited company, you may be eligible for a bridging loan for investors. This type of loan is designed for investors who want to purchase a property quickly and easily through a limited company.

Bridging loans for investors are often used to purchase buy to let properties, especially where the property is not mortgageble, because is needs renovating, or to refurbish existing properties. They are usually secured against the property that is being purchased (but can be secured against other property owned by the applicant), and the repayment period is typically up to 12 months.

How do business bridging loans work?

Business bridging loans work by providing short-term temporary finance to fulfil a need (to buy property that a mortgage cannot be secured on) or function (to renovate a property already owned), before either selling the property to pay back the loan, or taking out longer-term finance to pay back the loan.

The loan amount is usually based on the value of the asset that is being purchased. The interest rates on business bridging loans are usually higher than mortgages, this is because they are designed to cover situations that have more risk associated with them.

What are the benefits of a business bridging loan?

There are several benefits to taking out a business bridging loan, including:

Quick access to funds: Business bridging loans can be approved and funded in as little as a few days, which means that you can access the funds you need quickly and easily.

Flexibility: Business bridging loans are designed to be flexible, which means that they can be used for a wide range of purposes, including purchasing new assets, covering short-term cash flow gaps, and financing new projects.

No early repayment penalties: Many business bridging loans do not have early repayment penalties, which means that you can repay the loan early without incurring any percentage of the loan style fees (there may be a nominal administration cost).

No need for long-term commitments: Business bridging loans are designed to be short-term loans, which means that you do not need to commit to a long-term repayment plan, but you must be clear on how you will repay the loan.

Can be used for a wide range of purposes: Business bridging loans can be used for a wide range of purposes, including purchasing commercial property, refurbishing existing properties, financing new projects, covering business cash-flow gaps.

What are the risks of a business bridging loan?

As with any situation where you are borrowing money, there are risks associated with a business bridging loan.

Repossession: If you cannot repay your loan, ultimately a lender may take possession of your property to get back the money they loaned you.

Not regulated: Business bridging loans are designed for business purposes, so there is an expectation those using them are familiar with how they work and how to manage repaying them. For this reason, the Financial Conduct Authority (who typically oversee financial products designed for consumers), do not regulate them.

Cost: Business bridging loans are more expensive than a mortgage. It is vital you have a strong plan to repay the loan, whether through selling the property or using long-term finance to pay it back.

If you are working with a broker to find a loan, you should expect them to ask you about how you will repay. A broker can usually help you find long-term finance to move on to, if you are not selling the property.

Long term finance can include a buy to let mortgage (where you will be letting the property to residential tenants), a commercial mortgage (where the property is for business use) or a semi-commercial mortgage (where the property is part commercial, part residential).

How to apply for a business bridging loan

If you are interested in applying for a business bridging loan, there are several steps that you will need to follow. These include:

1. Research lenders: Research business bridging loan lenders and compare their rates and terms to find the best deal for your business. You can do this by looking at lender websites, reading reviews, and seeking recommendations from other business owners or professionals.
2. Gather your documents: You will need to provide documentation to support your application, such as proof of income and the value of the property or asset that you plan to use as collateral. Make sure that you have all the necessary documents ready before you apply.
3. Complete the application: Once you have found a lender that you want to work with, you can begin the application process. This typically involves filling out an online application form or speaking with an advisor over the phone.
4. Wait for approval: After you have submitted your application, the lender will review it and determine whether to approve your loan. This process can take anywhere from a few days to several weeks, depending on the lender's policies and the complexity of your application.
5. Complete legal work: If you are buying property, or renovating one, legal work will be required.
6. Receive funding: If your application is approved, the lender will provide you with the funds you need to complete your project. Make sure that you use the funds as agreed and repay the loan on time to avoid any penalties or fees.

Finding a business bridging loan is easy with a broker

Researching thousands of deals available in the marketplace is a very difficult and complex task for an individual. This is why using a broker can be a huge advantage.

A broker will have a working and detailed knowledge of the lenders operating in the marketplace, and have tools available to them to do all the checks necessary to match you to a lender who meets your requirements and constitutes the best deal financially.

Send an enquiry, call free, or live chat with the team at Commercial Trust, to chat through what you need and discuss the service we can offer you, our clients regularly tell us our service is invaluable and makes the process stress-free for them.