What are commercial bridging loans? And how do they differ from residential bridging loans? Excellent questions both of which we will aim to answer in this short article. A simple definition of commercial bridging loans might be: a form of finance use to secure funding for the acquisition or remortgage of property across the short term, making up a financial shortfall. In effect, bridging loans are used to supply a quantity of funding when a new property purchase is imminent and proceeds from the sale of an existing property which was going to be used for the new purchase have yet to be received.
Applying for bridging loans is not simple or straightforward, traditionally lenders are less likely to approve a bridging loan application than any other form of finance, for this reason it is important that you employ the services of professional and knowledgeable commercial bridging loan brokers to assist with all stages of your application if you wish to obtain an optimum result.
When approaching the application for bridging loans it is important that your company can demonstrate that it has the means available and a strategy in place to exit the bridge if the loan goes full-term, and the sale of the property which was to be used as funding for the new purchase has still not take place. No commercial lenders will consider an application for bridging loans which do not demonstrate that provisions have been made to cope with this particularly problematic situation.
There are primarily two types of bridging loans, there is the closed bridge which signifies a bridging loan that is used to purchase a new property, where the sale of the old property has already reached contract stage. A closed bridging loan is the easier of the two types of bridging loans to obtain, as once a property sale has reached the exchange of contract stage; it is highly unlikely that the deal will fall through. The second form of bridging loans is termed an open bridge, and this type of bridging loan is used to fund the purchase of the property when the sale of the old property is still in its infancy, and in some cases the property may not even have been put on the open market. These forms of bridging loans are extremely tricky to negotiate, due to the fairly high risk factor involved. An open bridging loan will usually come with a higher interest rate attached to reflect this increased risk.
As with any form of commercial finance, if you are applying for bridging loans it is advised that you employ the services of professional commercial finance brokers. Your brokers will be able to help you and guide you through the entire application for your bridging loan, and advise you of any potential pitfalls and problems with your application as a whole. Additionally, commercial finance brokers will deal directly with the lenders on your behalf, relieving you of many of the tasks involved in applying for bridging loans.
Darren Horne is Managing Director of Best Commercial Finance Ltd who are commercial mortgage brokers offering bridging loans.