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Commercial Bridge Loans | The Extraordinary World of Mortgage brokers | 2023

Commercial Bridge Loans

Commercial bridge loans 

 

Much like their residential counterparts, commercial bridge loans serve as a swift and effective solution when urgent financing needs arise. These loans play a crucial role in bridging financial gaps, especially in the realm of commercial properties.

When considering commercial bridge loans, it’s vital to understand that the property’s primary use must exceed 40% for commercial purposes. For instance, if you intend to acquire a property with both retail and residential components, the value of the retail portion should constitute over 40% of the total property value.

Landlords and landlord companies often opt for commercial bridge loans, with their exit strategy typically revolving around refinancing the loan through a Buy-to-Let Mortgage. This strategy frequently includes property renovations to enhance its rental suitability.

In the case of commercial units financed through commercial bridge loans, the exit plan commonly involves refurbishing the unit and subsequently either selling it or refinancing it with a conventional commercial mortgage. These flexible financing options empower investors and property owners to seize opportunities and navigate commercial property ventures with agility and confidence.

 

When to consider commercial bridge loans

 

Commercial bridging finance becomes a strategic choice in various scenarios, addressing unique financial needs that may not align with conventional commercial mortgages. The decision to utilise commercial bridging finance often hinges on the urgency of funding or the current feasibility of obtaining a commercial mortgage.

Here are some key situations where commercial bridging finance comes to the forefront:

 

  • Auction Purchases: Commercial bridge loans excel in facilitating quick acquisitions, such as properties bought at auction, where completion timelines are stringent.
  • Property Refurbishments: When substantial refurbishment work is planned for a commercial property, commercial bridging finance provides the necessary financial support to undertake these enhancements.
  • Property Sale and Repurchase: Commercial bridging finance can bridge the financial gap when a property is being sold, allowing funds to be reinvested in a new property or business venture.
  • Support for New Businesses: Entrepreneurs and new business ventures often turn to commercial bridge loans for initial funding, offering the flexibility needed during the startup phase.
  • Credit Repair: Some borrowers utilise commercial bridge loans to resolve adverse credit issues before securing a longer-term term loan.
  • Property Equity Release: Small businesses may leverage commercial bridging finance to unlock equity from their existing business premises, facilitating expansion or other financial objectives.

 

In each of these scenarios, commercial bridging finance emerges as a valuable tool, providing timely and adaptable financial solutions to meet the diverse needs of businesses and investors in the commercial property sector.

 

What are the property types commercial bridge loans can be used for?

 

 

Commercial bridge loans are highly versatile financial instruments suitable for various property types and purposes. The  range of commercial bridge loan products is adept at financing diverse property categories, including:

 

  • Offices and Professional Practices: Commercial bridge loans can provide swift funding solutions for offices and professional establishments.
  • Hospitality Sector: From pubs, bars, and restaurants to hotels, guest houses, and B&Bs, these loans cater to the unique needs of the hospitality industry.
  • Retail and Business Parks: Retail units and business parks often benefit from commercial bridging finance, allowing for prompt property acquisitions and developments.
  • Industrial Properties: Warehouses, factories, and industrial units are prime candidates for financing through commercial bridge loans, particularly for those seeking rapid investment opportunities.
  • Special Residential Investments: Commercial bridge loans extend their reach to encompass large HMOs and unconventional residential investments, supporting diverse property portfolios.
  • Mixed-Use Properties: Properties with mixed-use purposes, combining commercial and residential elements, find suitable financing options through commercial bridge loans.
  • Care Facilities: Care homes, a crucial sector, can access necessary funding for their operations and expansions with the assistance of commercial bridging finance.
  • Places of Worship: Commercial bridge loans can also serve places of worship, facilitating renovations, expansions, or redevelopments.
  • Commercial Premises: These loans are a valuable resource for financing various commercial properties, ensuring business continuity and growth.

 

Lenders’ comprehensive approach allows them to consider properties in various states, whether they are ready for occupation, need refurbishment, or are destined for conversion and development. This adaptability empowers borrowers to seize opportunities across an extensive spectrum of property types, backed by the flexibility and speed of commercial bridging loans.

 

Essential considerations before securing commercial bridge loans

 

Opting for bridging finance is a significant decision that warrants careful and thorough consideration. Even when speed is essential, taking your time with this pivotal decision-making process is crucial.

 

Here are key points to ponder before proceeding with  commercial bridge loans:

 

  • Evaluate All Financing Options: Before committing to commercial bridge loans, explore alternative financing avenues to ensure you select the most suitable option for your unique circumstances.
  • Consider Commercial Mortgages: Assess whether a commercial mortgage better aligns with your long-term objectives and financial requirements.
  • Loan Repayment Strategy: Deliberate how you intend to repay the bridging loan, ensuring you have a well-defined and feasible repayment strategy.
  • Exit Strategy Viability: Scrutinise the viability of your exit plan, and be prepared with contingency measures in case it encounters unforeseen obstacles.
  • Interest Payment Structure: Decide whether you prefer to make monthly interest payments or allow interest to compound onto the loan, weighing the pros and cons of each approach.

 

Additionally, when evaluating any financing product, carefully review the following:

 

  • Total Cost Analysis: Thoroughly understand the comprehensive cost of the loan, encompassing interest, fees, and any additional charges that may apply.
  • Term Suitability: Verify if the loan’s term aligns with the time required for your exit strategy to reach fruition effectively.
  • Default Handling: Examine how the lender handles defaults, especially about default interest rates, which can vary significantly.
  • Early Repayment Provisions: Inquire about the conditions and implications of repaying the loan ahead of schedule, including any potential interest payment obligations.

 

Working with a reputable broker can prove invaluable in answering these critical questions for each financing option under consideration, ensuring that you make an informed and well-balanced decision.

 

Understanding the hierarchy: First and second charge bridging loans

 

In bridging finance, an essential factor influencing loan terms and repayment scenarios is the financing associated with the collateral property. This aspect determines the lender’s position in the repayment queue in various situations, such as defaults, refinancing, or loan repayment. Lenders employ the terms ‘first charge’ and ‘second charge’ in bridging loans to describe their respective positions within this hierarchy, akin to a queue of lenders vying for repayment. These loans are also referred to as ‘senior’ and ‘junior’ bridging loans, with the ‘senior lender’ having priority in the event of repayment.

Consider the following scenario for clarity: Suppose you secure a bridging loan against a property already carrying a commercial mortgage. The loan will be categorised as a ‘second charge bridging loan,’ as the commercial mortgage holds precedence. If a default were to occur, the mortgage lender, termed the ‘first charge holder’ or ‘senior lender,’ would receive priority in all circumstances, encompassing interest payments, refinancing, and loan repayment. Conversely, when the property used as collateral is unencumbered by existing finance, the loan is designated as a ‘first charge’ bridging loan, with no preceding claims on the property.”

 

Interest rates for commercial bridge loans

 

When it comes to securing a commercial or semi-commercial property bridging loan, interest rates can exhibit a degree of variability, influenced by a myriad of factors. These factors encompass the loan’s term, the available deposit, and your track record in property development.

Drawing upon our extensive expertise in the bridging loan industry, we have cultivated exclusive relationships with lenders who recognise our track record of consistently delivering high-quality loan applications meeting their stringent criteria. If you possess a portfolio showcasing successfully completed projects, it can significantly enhance your eligibility, as our panel of lenders may request to review your portfolio.

Ultimately, the interest rate you receive hinges on your unique risk profile. Our panel assesses your proposal and evaluates your exit strategy for timely loan repayment. Our panel will approve your property or bridging loan funding if your history and plan demonstrate promise.

Many investors turn to our seasoned bridging loan brokers for comprehensive assistance throughout their property ventures and bridging loan applications. Our brokers are adept at helping you ascertain the potential interest rates applicable to your specific circumstances, providing invaluable insights based on your individual situation.

 

The imperative of consulting a mortgage broker

 

While it may seem repetitive or even slightly biased, when delving into the intricacies of mortgage finance, prioritizing a conversation with a seasoned mortgage broker should be your foremost consideration. Undeniably, you could engage in dialogue with a financial broker affiliated with a specific lending institution. However, it is essential to recognise that their purview is limited to the products offered by their respective lending company and does not encompass the entire breadth of the market.

 

The Distinct Value of a Mortgage Broker:

 

  • Holistic Market Access: Mortgage brokers provide you with a distinct advantage by offering access to the entirety of the market. This comprehensive perspective empowers you to explore various mortgage products, ensuring that your selection is tailored precisely to your unique needs and preferences.

 

  • Objective Guidance: Unlike brokers affiliated with a specific lender, mortgage brokers operate with a commitment to providing impartial advice. They aim to align your financial goals with the most suitable mortgage product, free from any allegiance to a particular lending institution.

 

  • Customised Solutions: Mortgage brokers leverage their industry expertise and market insights to curate bespoke solutions catering to your financial circumstances. Whether you seek a conventional mortgage, specialised product, or tailored refinancing options, their guidance is personalised to maximise your financial well-being.

 

  • Navigating Complexity: The landscape of mortgage finance can be intricate and multifaceted. Mortgage brokers serve as your navigational compass, simplifying complex concepts, elucidating intricate terms, and ensuring that you make informed decisions throughout the mortgage process.

 

In summation, while the notion of engaging with a financial broker within a lending institution may hold merit, it is pivotal to recognise that this approach offers only a glimpse of the mortgage market’s offerings. Consulting a seasoned mortgage broker remains an indisputable imperative to unlock the full spectrum of possibilities and secure a mortgage solution that perfectly aligns with your objectives.

 

 

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Liz Syms

(CeMAP)

About the Author

Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.

About the Author

Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.

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