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Commercial Property Bridging Loans: A Closer Look

Updated: May 2, 2023

When it comes to financing a commercial property, investors and business owners have a variety of options available to them. One such option is a commercial property bridging loan. In this article, we'll take a closer look at what commercial property bridging loans are, how they work, and the risks and benefits associated with this type of loan.



A commercial property bridging loan is a short-term loan that is used to bridge the gap between the purchase of a commercial property and an exit strategy, such as a sale of another asset or a longer-term financing solution such as a traditional mortgage or development finance. The loan is secured against the property being acquired (a “first charge”) and is typically used to purchase a property when the buyer is unable to access their long term financing strategy immediately.


Benefits of Commercial Property Bridging Loans include:

  1. Speed of Approval: One of the key benefits of a commercial property bridging loan is that it can be obtained quickly. Because the loan is secured against the property, lenders are able to perform due diligence and make a decision on the loan in a relatively short period of time. This can be especially helpful for investors and business owners who need to move quickly on a property purchase, for instance in an auction situation.

  2. Versatility: Another benefit of commercial property bridging loans is that they can be used for a wide range of properties, including retail, office, industrial, and mixed-use properties. This makes them a versatile financing option for investors and business owners looking to purchase a variety of different types of commercial properties.

  3. No minimum income requirements: Some traditional loan options have minimum income requirements, which make it difficult for some business owners to be eligible. But commercial property bridging loans don't have such requirements, which makes it available to a broader range of borrowers.

  4. Flexibility: Commercial property bridging loans offer a great deal of flexibility. Since the loan is for a shorter period of time, borrowers often have the option to refinance or negotiate non-standard fixed charges and repayment structures with the lender on their terms.

Risks of Commercial Property Bridging Loans Include:

  1. Higher Interest Rates: While commercial property bridging loans can be a useful financing option, they do come with certain risks. One of the main risks is that the loan is typically more expensive than a traditional mortgage. This is because the loan is secured against the property and is typically for a shorter period of time.

  2. Larger Deposit Required: Another risk of commercial property bridging loans is that the lender may require the borrower to have a larger deposit by way of lower loan to values (LTVs) than would be required for a traditional mortgage. This can be challenging for some investors and business owners, as it may require them to have a significant amount of available capital to invest upfront.

  3. Refinancing Risk: Another disadvantage of commercial property bridging loans is that they have to be paid off quickly, given their maturities tend to be sub 12-months. This can be difficult for some borrowers, especially if they are unable to refinance or sell the property in time. A well thought-through exit strategy upon entry is therefore paramount.

  4. Limited Lenders: Availability of commercial property bridging loans is limited, not all lenders offer this type of loan which make it difficult for some borrowers to find a lender that meets their custom requirements.

Final thoughts


In conclusion, commercial property bridging loans can be a useful financing option for investors and business owners seeking to purchase a commercial property. They offer the benefits of fast approvals, versatility and flexibility, but they also come with certain risks, including higher interest rates, larger deposit requirements, short-term loan and limited lenders. As with any financing option, it's important to carefully consider the pros and cons before making a decision.


Enquiries


For further information, please contact sr@bridgingfunding.com.


About the author


Sabbir Rahman is Managing Director of Langdon Capital and a Partner at Bridging Funding. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.


About Langdon Capital


Langdon Capital provides in-house transaction services to C-suites and Boards of publicly-listed and PE-backed businesses during the negotiation, execution and due diligence of corporate finance and capital markets transactions and senior interim resourcing solutions across finance, treasury, strategy and corporate development | contact info@langdoncap.com | visit www.langdoncap.com



This is not financial advice or any offer, invitation or inducement to sell or provide financial products or services or to engage in any form of investment activity.

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