Business Bridging Loans
Seeking a business bridging loan for acquisition, expansion, or debt refinancing? Mortgage Lane connects you with optimal lenders for cost-effective solutions. Our expertise ensures a smooth journey, whether you’re growing your business or managing financial shifts. Whatever sector your are in, bridging loans can be a useful tool when looking to acquire or refinance against business owned property. With a non-status approach to bridging loans, we are easily able to obtain funding against exit rather than the directors personal income or credit worthiness.
Business Bridging Loans
Seeking a business bridging loan for acquisition, expansion, or debt refinancing? Mortgage Lane connects you with optimal lenders for cost-effective solutions. Our expertise ensures a smooth journey, whether you’re growing your business or managing financial shifts. Whatever sector your are in, bridging loans can be a useful tool when looking to acquire or refinance against business owned property. With a non-status approach to bridging loans, we are easily able to obtain funding against exit rather than the directors personal income or credit worthiness.
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Types of Business Bridging Loans
We assist businesses with bridging loans over a variety of sectors such as, construction, leisure, care, retail, hospitality, healthcare, and industrial.
Our recommended bridging loans offer a maximum loan to value (LTV) of 75%, providing substantial leverage to help you seize timely opportunities. Given that bridging loans are a form of short-term funding, the exit strategy is a critical aspect of our underwriting process. We work closely with our clients to ensure a clear and viable exit plan, which could involve a commercial remortgage or the sale of the acquired asset.
Unlike traditional mortgages, the application process for a business bridging loan can be more streamlined. Many lenders do not require extensive searches and often accept an indemnity policy instead, leading to a quicker and less cumbersome process.
The acceptance of indemnity policies by lenders significantly accelerates the transaction process, making it a preferred choice over lengthy legal searches that are typical in mortgage applications.
A key advantage of business bridging loans is the absence of exit fees. This feature adds considerable flexibility, allowing businesses to repay the loan without incurring additional costs when they are ready or have secured long-term financing.
We understand that businesses often need swift financial solutions to manage their debt effectively. Our business bridging loans for debt consolidation refinancing are designed to provide immediate relief when commercial mortgages are not quick enough, or when a borrower needs to extract capital quickly before selling an asset in the near future.
These loans are particularly useful for businesses looking to consolidate multiple debts into a single, more manageable payment, thereby improving cash flow and reducing financial stress. By securing a bridging loan, you can quickly access the capital needed to streamline your finances and focus on your core operations.
Scenarios where our bridging loans can be beneficial include:
- A business with multiple high-interest debts looking to consolidate into one lower-interest loan.
- A company needing to extract equity from an asset rapidly to reinvest in another venture.
- An enterprise preparing for the sale of a property but needing immediate funds to cover pressing obligations.
Our bridging loans, secured against the property’s bricks and mortar valuation, offer a maximum loan to value (LTV) of 75%. This ensures that you can leverage a significant portion of your asset’s value to meet your immediate financial needs.
Given the short-term nature of bridging loans, a clear exit strategy is essential. We work closely with our clients to develop viable plans, which may include refinancing with a long-term commercial mortgage or selling the asset once market conditions are favourable.
We offer business bridging loans tailored for acquisitions and mergers, providing the critical funding needed to capitalise on strategic opportunities quickly. Our recommended bridging loans can support various scenarios, such as acquiring a competitor, merging with a complementary business, or purchasing key assets that will enhance your market position.
Examples cases:
- A retail chain looking to acquire a smaller competitor to expand its market presence.
- A healthcare provider merging with another to consolidate resources and services.
- An industrial firm purchasing additional facilities to increase production capacity.
- A hospitality group acquiring a prime property to expand its portfolio.
Our recommended loans are secured against the bricks and mortar valuation method, ensuring transparency and reliability in the loan-to-value assessment. With a maximum loan to value (LTV) of 75%, our clients can leverage substantial funding to meet their acquisition or merger goals.
As bridging loans are short-term solutions, the exit strategy is a crucial part of our underwriting process. We collaborate closely with our clients to develop a clear and feasible exit plan, which may include options such as a commercial remortgage, refinancing, or the sale of the acquired asset.
Experts in Business Bridging Loans
At Mortgage Lane we are specialists in business bridging loans. Our expert brokers are regular advisors with bridging loans to facilitate business needs, securing against property, often this can offer businesses greater flexibility with affordability and speed. We assist businesses with bridging finance for a variety of reason such as the below.
Specialist scenarios
- Mergers and acquisitions
- Property purchases
- Tax bills
- Loan consolidation
- Trading capital
- VAT bridging
This thread is not legal or tax advice, if anyone is looking to do anything noted in the contents, we recommend you speak with a qualified individual.
ANSWERS TO COMMON QUESTIONS AND QUERIES ABOUT BUSINESS BRIDGING LOANS
What is a Business Bridging Loan?
A business bridging loan is a short-term financing solution designed to provide immediate access to capital for businesses facing urgent financial needs. Unlike traditional commercial mortgages, which are long-term and often slow to process, bridging loans offer quick and flexible funding to bridge the gap until a more permanent financial solution is available.
Reasons for Taking a Business Bridging Loan:
- Acquisitions and Mergers: Businesses may need rapid funding to acquire a competitor or merge with another company without waiting for long-term financing.
- Debt Consolidation: Companies looking to consolidate multiple debts into a single, more manageable loan can use bridging loans to streamline their finances.
- Capital Extraction: Businesses may need to quickly extract equity from an asset to reinvest in new opportunities or cover immediate expenses.
- Property Transactions: Bridging loans can facilitate the purchase of new property while awaiting the sale of an existing one.
Why Choose a Bridging Loan Over a Mortgage?
- Speed: Bridging loans are typically approved and disbursed much faster than traditional commercial mortgages, making them ideal for urgent financial needs.
- Short-Term Solution: Bridging loans are designed to be temporary, with terms usually ranging from a few months to a couple of years, while mortgages are long-term commitments.
- Flexibility: Bridging loans offer more flexibility in terms of use, allowing businesses to address immediate financial challenges or opportunities without the long-term commitment of a mortgage.
Differences Between Bridging Loans and Mortgages:
- Loan Term: Bridging loans are short-term, usually lasting from a few months to a couple of years. Mortgages are long-term, often spanning 15 to 30 years.
- Approval Speed: Bridging loans are processed quickly, providing immediate access to funds. Mortgages involve a lengthier approval process.
- Interest Repayment: Interest on bridging loans can often be rolled up and paid at the end of the term, rather than monthly, allowing businesses to focus on resolving their immediate financial needs without the burden of monthly interest payments. Mortgages typically require monthly interest payments over the life of the loan.
Interest Repayment on Bridging Loans:
Interest on bridging loans can be structured in various ways, including:
- Monthly Payments: Similar to traditional loans, where interest is paid each month.
- Rolled-Up Interest: Interest is added to the loan amount and paid in full at the end of the term.
- Retained Interest: A predetermined amount of interest is deducted from the loan amount upfront, covering the interest for the loan term.
Business bridging loans offer a versatile and rapid financial solution, enabling businesses to act swiftly on opportunities and manage their financial obligations effectively, without the long-term commitment and slower processing time of traditional mortgages.
The minimum property value required for a business bridging loan generally starts at £75,000. This requirement can vary between lenders, as each institution may have different criteria based on their lending policies and risk assessments.
How Do I Get a Business Bridging Loan with Bad Credit?
Securing a business bridging loan with bad credit is possible because bridging lenders are often considered non-status lenders. This means that they place less emphasis on your credit history and more on the strength of your exit strategy and the value of the asset being used as security.
What Does Non-Status Mean?
Non-status lenders focus primarily on the viability of the loan’s exit strategy rather than the borrower’s credit profile. This approach allows businesses with adverse credit histories to still access the funding they need, provided they have a clear and strong plan for repaying the loan.
Types of Adverse Credit
Businesses or individuals may have various types of adverse credit, such as:
- Late Payments: Missing due dates on previous loans or credit agreements.
- Defaults: Failing to meet the repayment terms of a credit agreement.
- CCJs (County Court Judgments): Legal judgments for unpaid debts.
- Bankruptcy: A legal status involving a person or business unable to repay outstanding debts.
Importance of a Strong Exit Strategy
The key to obtaining a business bridging loan with bad credit lies in presenting a robust exit strategy. This strategy outlines how you plan to repay the loan at the end of its term, which could include:
- Commercial Remortgage: Refinancing with a long-term commercial mortgage.
- Property Sale: Selling the secured asset to repay the loan.
- Business Revenues: Using income from business operations to pay off the loan, but this will need to be evidenced.
Credit Agencies Used by Bridging Lenders
While bridging lenders are more flexible regarding credit history, they may still check your credit report for a comprehensive assessment. Common credit agencies used by business bridging lenders include:
- Experian
- Equifax
- TransUnion
These checks are generally to understand the borrower’s financial background rather than to serve as the primary basis for loan approval.
Yes, first-time buyers can obtain a business bridging loan. Bridging lenders often operate as non-status lenders, which means they place less emphasis on the borrower’s credit history or previous experience with similar loans. Instead, they focus on the strength of the asset being used as security and the viability of the exit strategy.
What Does Non-Status Mean?
Non-status lending refers to the practice where the lender’s primary concern is not the borrower’s credit score or financial background. Instead, they evaluate:
- Asset Value: The value of the property or asset being used as collateral.
- Exit Strategy: The plan for repaying the loan, such as refinancing with a long-term commercial mortgage, selling the secured asset, or using business revenues.
Benefits for First-Time Buyers
For first-time buyers, this approach has several benefits:
- Accessibility: Without the need for a strong credit history or prior experience, first-time buyers can access the funds they need more easily.
- Speed: Bridging loans are typically processed quickly, providing rapid access to capital.
- Flexibility: These loans can be used for various purposes, including purchasing a new property, consolidating debt, or investing in business opportunities.
Yes, business bridging loans are frequently used by our clients to acquire properties at auction. When considering a business bridging loan for this purpose, it’s advisable to engage with your broker promptly. This early engagement is crucial for determining the legal representation you’ll be working with during the transaction.
Business bridging loans are an excellent financing solution for businesses looking to purchase properties at auction. Auctions can present lucrative opportunities to acquire properties below market value, but they also come with strict and often tight completion deadlines. Bridging loans provide the necessary speed and flexibility to meet these requirements.
Traditional Auction Deadlines
In traditional property auctions, the completion deadline is typically set at 28 days from the date the auction ends. This short timeframe can be challenging to meet with conventional financing methods, such as commercial mortgages, which often require a longer approval and disbursement process.
Modern Auction Deadlines
Modern auctions, sometimes referred to as conditional auctions, offer a slightly longer timeframe for completion, usually up to 56 days. While this provides more leeway compared to traditional auctions, it can still be tight for businesses relying on standard loan approval processes.
Benefits of Bridging Loans for Auction Purchases
- Speed: Bridging loans are designed to be fast, with approvals and fund disbursement occurring much more quickly than traditional loans. This ensures you can meet the 28-day or 56-day completion deadlines without issues.
- Flexibility: These loans are versatile and can be tailored to fit the unique needs of auction purchases, allowing businesses to secure the property while arranging long-term financing.
- Leverage: With bridging loans, you can leverage up to 75% of the property’s value, providing substantial purchasing power.
How Bridging Loans Work for Auction Purchases
- Pre-Approval: Before attending the auction, you can seek pre-approval for a bridging loan based on the estimated value of the properties you are interested in. This gives you confidence and clarity on your bidding limits.
- Winning the Bid: Once you win the auction, you will need to pay a deposit (usually 10% of the purchase price) immediately.
- Completion: The remaining balance must be paid within the auction’s specified completion period (28 or 56 days). The bridging loan provides the necessary funds to complete this purchase within the required timeframe.
- Exit Strategy: After securing the property, you can then arrange a long-term commercial mortgage or sell the property as your exit strategy to repay the bridging loan.
We assist our clients with Business Bridging loans in England, Wales, Scotland and Northen Ireland.
Although some lenders will be more comfortable with experience, most Business Bridging loan Lenders would not require you to have any level of experience when arranging a bridging loan. The experience required at underwriting by the bridging lender, will be the experience you will need to get a development loan in order to exit the Business Bridging loan or experience required to remortgage.
It is important to note that Business Bridging Loans are not covered by the Financial Services Compensation Scheme, unless they intend to reside in the property, so auction loan investment borrowers should ensure they are dealing with a reputable lender.
The minimum loan size required for a business bridging loan typically starts at £50,000. However, this amount can vary between lenders, with some institutions offering loans starting at different minimum thresholds depending on their specific lending criteria and policies.
There are two repayment methods when repaying interest with bridging finance.
Serviced Interest
Serviced Interest requires the borrower to pay the interest monthly. This setup is similar to a standard mortgage and is common in business bridging loans.
This option is advantageous for businesses with a regular income stream. It allows for effective cash flow management by paying interest incrementally, helping to maintain the principal loan amount as the borrower actively pays off the interest.
Businesses must ensure they have sufficient cash flow to manage these monthly payments. Careful financial planning is essential to avoid any strain from these ongoing expenses.
Deducted (Retained) Interest
In a Deducted or Retained Interest arrangement, the total interest for the loan term is calculated upfront and deducted from the initial loan amount.
This option suits businesses that may not have a consistent income during the loan term, such as those waiting to sell or refinance a project. It simplifies financial management by eliminating the need for monthly interest payments, as the interest is prepaid
With the interest deducted at the start, the initial capital available to the business is reduced. This requires careful planning to ensure that the business has enough funds to meet its immediate needs.
Both Serviced and Deducted Interest options in business bridging loans have distinct uses, depending on the financial circumstances and objectives of the business. It’s crucial for borrowers to understand these differences to select an arrangement that aligns with their financial strategy and the specific use of the bridging loan.
When securing a business bridging loan, the legal process is a crucial component to ensure the transaction is handled efficiently and securely. Most bridging loan lenders have a legal panel, which is typically a closed group of solicitors and legal firms that they work with regularly. This panel can offer joint or sole representation, each with its own advantages and differences.
Closed Legal Panels
A closed legal panel means that the lender has pre-approved specific solicitors or legal firms to handle the legal aspects of the bridging loan transaction. This ensures that the lenders are working with legal professionals who are familiar with their processes, requirements, and standards, which can lead to a more streamlined and efficient process.
Joint Representation
Joint representation occurs when the same legal firm or solicitor represents both the borrower and the lender. This approach can have several benefits:
- Cost Efficiency: Since only one set of legal fees is incurred, joint representation can be more cost-effective for both parties.
- Speed: With one legal team handling the entire transaction, the process can be expedited, reducing the time it takes to complete the loan agreement.
- Simplicity: Having a single point of contact for all legal matters can simplify communication and coordination.
However, joint representation also requires both parties to agree on the same legal representation, which may not always be feasible or preferred by all borrowers.
Sole Representation
Sole representation involves each party having its own separate legal representation. This means the borrower and the lender each hire their own solicitor or legal firm to handle their side of the transaction. The advantages of sole representation include:
- Independent Advice: Each party receives independent legal advice tailored to their specific interests and needs.
- Conflict of Interest: This approach helps avoid any potential conflicts of interest, ensuring that both the borrower’s and lender’s rights are fully protected.
While sole representation can be more expensive and time-consuming due to the involvement of two separate legal teams, it provides a higher level of assurance that each party’s interests are independently safeguarded.
While a minimum income is not required for the initial approval of a bridging loan, it becomes relevant if your exit strategy involves remortgaging. In this case, the new lender may need to ensure that your income is sufficient to cover the repayments on the long-term mortgage.
- Remortgage Requirements: If you plan to exit the bridging loan through remortgaging, the lender providing the new mortgage will likely evaluate your income to ensure you can afford the ongoing repayments.
We arrange cost-effective Business bridging loans for:
- Individuals
- Special Purchase Vehicles/Limited Companies
- Limited Liability Partnerships (LLP)
- Trading companies
- Charities
- On/Offshore Trusts
Yes.
In fact, as long as you are happy to risk the application fees it can be a great idea to speed up your application and buy yourself time before you are up against the clock! However, if you do not win the property, this can mean wasting fees on broker fees, valuation fees and sometimes legal costs. See more on Auction Property Loans here.
The completion time for a business bridging loan can vary, but it typically ranges from a minimum of 4 days to an average of 2-3 weeks. Several factors influence the exact timeline, including the borrower’s responsiveness, the lender’s underwriting speed, the timescale for property valuation, and the efficiency of the legal process.
Factors Influencing Completion Time:
- Borrower Response Speed: Prompt submission of required documents and information by the borrower can significantly expedite the process.
- Lender’s Underwriting Speed: The time taken by the lender to assess the application and make a decision is crucial. Some lenders have faster underwriting processes than others.
- Valuation Timescale: The property valuation process is essential to determine the loan amount and can impact the overall timeline.
- Speed of Legals: The legal process, including the preparation and review of documents, can vary in duration.
Indemnity Policy for Faster Legal Process
To further expedite the legal process, we work with bridging lenders that have a full indemnity policy. This policy can help speed up the completion by reducing the need for certain checks and simplifying the legal requirements.
Can I Finance the VAT with a Business Bridging Loan?
Yes, you can finance the VAT (Value Added Tax) with a VAT bridging loan. This can be particularly useful in property transactions where VAT is applicable, allowing you to manage your cash flow more effectively.
Options for Financing VAT:
- Funding and Reclaiming on Your Behalf: Some bridging lenders offer services where they not only fund the VAT portion of your transaction but also manage the reclaim process on your behalf. This can simplify the process and ensure you receive your VAT refund promptly.
- Funding Only: Other lenders may provide the funds to cover the VAT, but you will be responsible for reclaiming the VAT yourself. This approach still helps with immediate cash flow but requires you to manage the reclaim process.
VAT De-Election:
In cases where the property is going to be de-elected for VAT, it’s important to understand the implications and options available. Financing the VAT with a bridging loan can provide the necessary liquidity during the de-election process.
Consultation with a Tax Advisor:
Given the complexities involved in VAT financing, especially with de-election scenarios, it is highly recommended to speak with a qualified tax advisor.
Learn more about Business Bridging Loans
At Mortgage Lane, we see the most complex of Business Bridging Loan applications, some of which make a good read for investors looking to learn from other applicants’ challenges, or for those effected by the topics! See more refurbishment loan topics covered in our blog here.
START YOUR JOURNEY WITH AN EXPERT Business Bridging Loan BROKER
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