How to Get a Bridging Loan in Scotland

Whether buying a property, planning refurbishments or starting a new business venture, a bridging loan can provide fast access to capital to cover (or ‘bridge’) a funding gap to keep your project on track. In Scotland, bridging loans are a popular source of finance for short-term funding needs, particularly for property needs.

In this article, we discuss how to get a bridging loan in Scotland, including key considerations and the process of exploring providers and starting an application.

What are bridging loans?

Bridging loans are short-term financing solutions designed to bridge temporary capital and enable businesses and entrepreneurs to reach their funding targets for large-scale purchases. 

Commonly used in property transactions, business acquisitions and cash flow management, bridging loans in Scotland offer the speed and flexibility you need to cover key costs without impacting your operations and affecting working capital.

Bridging loan providers can offer you a lump sum in a short period, to ensure you can meet your funding targets for a large-scale purchase or investment. They are usually interest-only loans for the period you need the funds until securing additional sources of finance or, in a property development project or purchase, completing a future sale. 

What can a bridging loan be used for?

You can use a bridging loan to finance property purchases in Scotland, plus renovations, development and auction acquisitions​​, or when buying a business, provided the assets in question are of sufficient value and that you have a clear exit plan. 

Why is using bridging loans popular in Scotland?

Bringing loans are commmon in Scotland because the Scottish property buying process works in slightly different ways, primarily in how bidding is done and how quickly sales can go through from the initial offer. That’s where quick, short-term funding solutions like bridging loans come in.

The commercial property market in Scotland is also highly dynamic, and it’s growing. 2024 saw a record high, with growth of 16% above the five-year average, which means speed is of the essence when it comes to real estate opportunities, such as investments in urban cities like Glasgow and Edinburgh, rural developments in the Highlands, or niche markets and land purchases. 

How do bridging loans work in Scotland?

Bridging loans are a short-term funding option for bridging temporary funding gaps, and work differently from most other business loans or long-term finance agreements, like commercial mortgages. They’re designed to cover funding needs until a longer-term finance product can be arranged or a high-value asset (often property) is sold. 

The key functionality to be aware of is how repayments work and the flexibility offered by lenders. It’s not the usual case of getting a lump sum and repaying the loan as monthly instalments, as the borrower may not have access to funds to make repayments – they’re either reliant on a future finance agreement or the sale of an asset, hence why they need this fast injection of capital. 

You’ll usually choose between two options for repayments: an open or closed bridging loan repayment agreement. Here’s how they differ:

• Open bridging loans: An open agreement where there’s no fixed repayment date (within an agreed maximum borrowing term), typically when the exit strategy or date for asset sales or securing future funds is yet to be confirmed. 
• Closed bridging loans: You’ll agree on a set repayment date, often when there’s a confirmed property sale date in place.

Either way, you may be given a period limit, with flexibility of when to repay the principal within that time. Meanwhile, interest on the loan can be quoted and charged monthly until the minimum loan period, after which daily charges can kick in. 

Why are bridging loans different in Scotland?

While the structure of bridging loans is the same across the UK, getting one in Scotland lets you benefit from the country’s property buying and selling process. As property transactions in Scotland can be legally secured earlier, once missives are concluded, it reduces the risk of a sale falling through compared to England and Wales. This makes residential and commercial bridging loans less risky for lenders and borrowers, as repayments are more predictable.

Let’s look at the key differences that make bridging loans a great option for purchasing property in Scotland:

Catering to the differences in the property purchase process in Scotland

The main differences in property sales in Scotland are the blind bidding (which alleviates the issue of gazumping), offers being made through solicitors rather than estate agents and the process of sending missives, after which the sale is legally binding, and legal and survey checks happening before the offer is finalised, giving greater certainty for buyers and sellers at an early stage.

Critically, there are no separate exchange and completion stages, so it's rarer for sales to fall through after acceptance in Scotland, compared to England and Wales.

What does that mean for bridging loans in Scotland? Well, it means that in Scotland,  bridging loans are more predictable and lower-risk options. As purchases are legally secure much earlier, lenders have greater confidence in the borrower’s exit strategy, especially when repaying the loan from the sale of an existing property. 

The Scottish system means you’re unlikely to need the loan for longer than planned, as there are fewer risks and hurdles, which can lead to lower costs, improve lender appetite and better terms.

Key components of a bridging loan to consider

• Loan amounts: This can widely vary, with sums starting from around £25,000 to as much as £250 million.
• Loan-to-value (LTV): Lenders can offer up to 80% LTV, or even more if providing additional collateral.
• Borrowing terms/periods: This is usually between 1 and 24 months, as it’s typically a short-term lending option.
• Interest rates: Starting from around 0.45% per month​​, climbing to 2%.
• Security: Bridging loans are secured against assets, usually property or land.

How quickly can I secure a bridging loan?

Property bridging loans are built for speed, and most lenders disburse funds within 7 days, with some offering same-day approvals​​. This is particularly useful in the Scottish real estate market, where you need to move quickly. 

Are there credit checks involved?

Since bridging loans are a type of secured loan, where the borrower provides assets to be used as collateral against the borrowing amount – in this case, usually the asset being purchased – lenders focus on the value of the asset and exit strategy rather than just your personal or business credit history​. However, credit checks are still usually conducted to judge your risk level and likelihood of repaying the loan.

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Advantages of bridging loans in Scotland

The advantage of bridging loans in Scotland is that they’re ideal for time-sensitive and complex financing needs, since they’re designed to be fast, accessible, flexible and applied to multiple funding scenarios.

• Speed of funding: Once approved, funds can be released in a few days, which is crucial in a fast-moving property market and for capitalising on time-sensitive deals​​ or urgent repairs.
• Accessibility: With high-value assets used as security and repayments tied to existing strategies, bridging loans are often more accessible than many other types of loans.
• Flexibility: Repayment terms can be tailored to your needs and adapted to accommodate complex circumstances​​ and exit strategies.
• Tackling unique funding scenarios: These loans can support you in diverse funding situations, from property development and renovations of unmortgageable properties (to bring them up to sellable conditions) to auction purchases and land acquisitions without planning permission in place. 

What are the risks of bridging loans?

Like most short-term finance products, bridging loans come with higher interest rates than most long-term funding solutions, so it’s important to have a solid exit strategy. 

You should have a clear idea of how you’re going to generate the capital to repay the loan in a reasonable time (usually within 12 months) through alternative financing, selling the property in question, or another property, to finance the purchase.

The main risks involved in using bridging loans are:

• Changeable market value, which can affect your ability to repay the full amount (plus interest), unless a suitable long-term finance plan is secured.
• Higher rates compared to mortgages, although the solution is a means to an end for bridging funding gaps and sealing time-sensitive purchases.

Potential defaults if any deal happens to fall through (although less likely in Scottish property sales), leading to repossession of your assets.

Supplier Comparison: Bridging Loans in Scotland

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You can also approach your bank about a bridging loan, and the Bank of Scotland does offer bridging finance as part of its Private Banking arm. While you may be able to get agreements up to 100% LTV, these come with strict eligibility criteria and are targeted at high-net-worth individuals. 

How to get a bridging loan in Scotland: key steps

Once you’ve chosen a bridging loan provider in Scotland, you can start pulling your plans and documentation together to apply for the loan. Here are the typical steps from this point:

1. Evaluate your needs and put together a solid plan

Define the funding purpose (auction purchase, property development, business liquidity, etc) and scope out your key requirements, such as the amount needed, asset value and funding gap. Then decide on your exit strategy and get a clear plan in place.

2. Explore and compare bridging loan lenders

Start looking at potential lenders, checking their eligibility criteria, comparing rates and determining their level of flexibility, before compiling a shortlist.

3. Prepare your documentation

Get ready for a bridging loan application by collating key documentation, such as property valuations, proof of ownership, exit strategy details and various financials. Lenders will evaluate the information provided before considering an approval and the terms they’re prepared to offer.

4. Calculate the costs

Before agreeing to anything and signing on the dotted line, review the rates and terms offered by Scottish bridging loan providers. It’s important to calculate your total cost of borrowing, accounting for arrangement fees, valuation costs and legal fees, plus interest, to properly judge suitability and weigh up the risks involved.

5. Access the funds

Once applications are complete, you’ve received a loan approval and decided to move forward, funds can be disbursed quickly, due to the nature of the loan’s purpose (often within a matter of days). Then you’ll be able to leverage the capital for your funding needs. Be clear about your requirements and responsibilities regarding repayment and loan usage to ensure you meet the conditions and repay the loan within the agreed-upon timeframe.

Alternatives to bridging loans

While getting a bridging loan to buy a property in Scotland or fund development projects can provide fast access to finance, it’s not the only option available for short-term funding needs. 

Here are a few alternatives to bridging loans you can consider:

• Invoice finance: If your funding gap is due to delayed client invoice payments or lengthy payment schedules on development or construction projects, invoice financing can unlock funds tied up in pending payments. This can give you fast access to capital to help you reach your funding targets.
• Property development loan: If funds are for refurbishment, renovation or construction, rather than just a property purchase, you may want to seek a property development loan rather than a bridging loan.
• Releasing equity from existing property: Using existing equity in a property to raise funds through your mortgage lender can give you the required money for a new purchase at lower rates than with a bridging loan.
• Unsecured flexible business loans: Using an unsecured loan from a digital lender, like iwoca, can provide quick access to capital without needing assets as collateral, and with flexible terms tailored to your needs and cash flow.

iwoca’s Flexi-Loans combine speed of funding with transparency and tailored repayment terms, providing flexible financing solutions for property purchases and much more. Our award-winning loans are designed for SMEs to support growth and cash flow management, and enable businesses to grasp opportunities by moving at pace. 

Benefits of Flexi-Loans include:

• Fast funding – get approved within 24 hours, with funds deposited into your account on the same day, helping you seize opportunities as they arise.
• Fair and clear pricing – iwoca offers clear, upfront pricing with no hidden costs, so you know what you’ll need to pay from the outset, and you only pay interest on the funds you actually draw down.
• Flexible repayment – borrow between £1,000 and £1 million for a few days right up to 60 months, for short- and longer-term funding needs, with options to repay early (free of charge) or top up (subject to approval).

Find out how to get a loan from iwoca or use our handy business loan calculator to see your likely repayments.