A guide to commercial bridging loans

Commercial bridging loans are short-term loans used to finance the purchase of a commercial property. Businesses use these loans when there is a gap between selling one property and buying another.

16 June 2022

Commercial bridge loans can be a great way to quickly get your business up and running! We’ll discuss everything you need to know about commercial bridging loans, including how they work, the pros and cons, and more.

What is a commercial bridge loan?

A commercial bridge loan means short-term financing used to purchase or refinance commercial property. You use these loans when there’s a gap between when you sell your current property and when you buy your new property (which can be as long as six months or more). These loans are short-term, usually lasting between 6 and 12 months, and you pay them off when you have the proceeds from the sale of the old property. However, some lenders made the choice of proposing a more extended repayment period of up to 36 months.

Commercial bridging loans can also be called "commercial interim loans" or "gap financing".

The pros and cons of commercial bridge loans?

Advantages of commercial bridge loans

Quicker access to capital compared with conventional financing
Deferred payment: you only pay the principal and interest payments when you’ ve sold the property
Flexible terms: lenders are typically more flexible with their terms since the loan is temporary
More accessible: this type of funding is easier to gain than conventional loans and mortgages

Disadvantages of commercial bridge loans

Higher interest rates and potentially higher fees compared with conventional financing options (though these vary depending on the lender)
Shorter-term: you typically need to repay these types of loans typically need to be repaid quickly
Collateral: borrowers need to give sufficient collateral to guarantee the loan

Commercial bridge loan calculator

You can calculate the cost of a commercial bridge loan based on the ratios below. These rates can vary depending on the lender but represent an average - based on our research across different lenders.

The loan-to-value (LTV) ratio refers to the loan amount divided by the property's appraised value. For example, if you plan to buy a property worth £200,000 and you need to secure a loan of £120,000, in funding then the LTV would be 60% (£120,000/£200,000).

Loan-to-Value (LTV)	Rate Per Month
Up to 40%	0.48%
40% to 50%	0.53%
50% to 65%	0.63%
65% to 75%	0.69%
70% to 75%	0.84%

So, if for example you have a loan amount of £200,000, and the LTV ratio is 45%, the interest on your loan will be £1,060 per month (0.53% of 200,000)

Lots of businesses use iwoca’s Flexi-Loan to bridge gaps like this - whether that’s for property or to cover unexpected costs. Some of the benefits of taking a loan include:

you only pay interest for each day you have the funds
there are no fees for early repayment
top-ups are available
there’s no obligation to take the money after approval

Dan, from Companion Apps, used an iwoca Flexi-Loan to bridge a payment gap: “We were waiting for payments from Apple and Google to come through and iwoca’s loan helped bridge that gap. They were able to offer us a small amount and it worked just beautifully in that moment”. Check out his full story in our article on Companion Apps.

How to compare commercial loan interest rates

When looking for a commercial bridge loan, it's important to compare different lenders' commercial bridge loan rates. Because bridging loans are generally short-term, lenders calculate the interest monthly rather than using an annual percentage rate (APR). You repay this interest in one of three ways:

Monthly basis: you pay the interest every month, and the lender doesn't include it in your final balance.
Rolled-up deal: you pay all the interest at the end of the term.
Retained interest: the amount you borrow covers the monthly interest payments, meaning you pay everything back at the end of the loan.

It’s also important to note that bridge loan rates are either:

fixed: the interest rate is fixed throughout the loan, so your repayments will be the same every month.
variable: your interest rate can change at any time during the terms of the agreement as it depends on fluctuations to the base rate, which means that it might go up or down without notice.

Is a commercial bridge loan right for your business?

Whether you're looking to expand your business, buy a new commercial property or renovate an existing one, a bridge loan can help. However, it's important to take the time to understand what bridging loans are and compare commercial bridge loan lenders. Here are some lenders that are currently offering commercial bridge loans:

Market Finance Solutions:

Loan size: £100,000 to £30,000,000
Rates: from 0.75% per month
Term: 3 to 21 months

Mint Property Finance:

Loan size: £75,000 - £1,500,000
Rates: from 0.4% per month
Term: up to 12 months

ABC Finance Limited:

Loan size: £25,000 with no maximum
Rates: from 0.55% per month
Term: 1 to 36 months

Proplend:

Loan size: up to £5 million
Rates: from 0.75% per month
Term: up to 18 months

United Trust Bank:

Loan size: £125,000 to £15,000,000
Rates: not provided
Term: up to 12 months (regulated) or 36 months (unregulated)

Glenhawk:

Loan size: £250,000 to £5,000,000
Rates: from 0.75% per month
Term: 3 to 24 months

Ortus Secured Finance:

Loan size: £100,000 to £25,000,000
Rates: from 0.65% per month
Term: up to 36 months

Most bridging loan providers also charge an arrangement fee, which is roughly in the region of 2%.

What other solutions are available?

Before you explore bridging loan providers, check out our article on bridge finance.

Depending on your investment needs, you could consider alternative options such as an iwoca Flexi-Loan. We offer flexible short-term finance - up to £500,000 - that gives you the option to repay early without any fees.