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16 June 2022Commercial 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 2022Commercial 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.
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".
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:
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.
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:
It’s also important to note that bridge loan rates are either:
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:
Most bridging loan providers also charge an arrangement fee, which is roughly in the region of 2%.
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.
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Charlotte is a Senior PR & Communications specialist at iwoca. She's been sharing news and insights about the finance industry for over three years.