Commercial bridging loans

A commercial bridging loan is short-term finance secured on property used for business, such as shops, offices, warehouses, industrial units, pubs, hotels or mixed-use buildings. It is used to buy, refinance or reposition property quickly, and it is repaid by selling the property or by moving onto a longer-term commercial mortgage once the plan is complete.

Borrowers include investors, trading businesses, limited companies and developers. Because the security is not the borrower's home, commercial bridging finance is normally unregulated, and each lender sets its own criteria on property type, location, tenancy and loan size.

Common uses include buying at auction, purchasing below market value before a quick resale, funding a property while planning permission or a change of use is sought, refurbishing an empty unit to attract tenants, and releasing capital while a longer-term commercial mortgage is arranged. The common thread is a short timescale and a defined exit.

Some cases involve land rather than buildings, or a development plan. Those are covered on the separate pages about land bridging finance and bridging for property development, which explain how lenders treat planning risk. Industrial and retail units are assessed in the same way as other commercial property.

Lenders start with the property: its value, condition, location, use class and any leases. They then look at the loan-to-value, the borrower's experience and the exit route. Vacant or specialist property is usually treated as higher risk than let property with established tenants, so the terms on offer reflect that risk.

The valuation is usually carried out by a surveyor approved by the lender, and commercial valuations can take longer than residential ones. Lenders may also ask for a business plan, details of tenants, or a schedule of works. Typical pricing and fee structures are explained on the bridging loan rates page.

Every commercial bridging loan needs a clear exit. The two main routes are selling the property and refinancing onto a commercial mortgage or commercial buy-to-let. Lenders want evidence that the exit is realistic, such as an agent's sale advice or an agreement in principle from a longer-term lender, before they agree the term of the loan.

If works or a change of use are part of the plan, the exit usually depends on finishing them first. Lenders build that into the term, and some allow a short extension for a fee. A weak exit is one of the most common reasons a commercial bridging application is declined, so it is worth preparing carefully.

Interest on commercial bridging is quoted monthly and can be serviced each month, rolled up and paid at the end, or retained from the advance at the start. Rolled or retained interest helps when the property produces no income during the loan. Serviced interest reduces the total cost but needs reliable income throughout the term.

Arrangement fees, exit fees, valuation and legal costs all add to the total cost. A bridging loan calculator shows how the interest method changes the amount repaid, and specialist bridging loan brokers can compare lenders that take commercial security.