We must make sure we understand what kind of financing is needed, or we might regret it later. For UK commercial property, Bridge loans are coming back.
Often touted as the saviour to real estate investors, bridge loans can serve as the perfect temporary form of financing until a more permanent form is established.
In this blog post, we discuss the ways in which bridge loans will be most advantageous for acquiring commercial property.
If you’re just starting to invest in property in UK, read on to find out what these loans are and how they’re great for real estate investors.
What are a Commercial Bridge loans?
Commercial bridge loans are temporary and only provide funding for a set amount of time, which bridges the gap to your financial goals. It basically allows you to financially bridge a difficult period, while setting up your next round of projects and investments, so you’ll have something coming in the future.
When buying property, bridge loans are used to finance the purchase until the buyer can afford a more permanent type of financing such as a mortgage.
A loan from an investment lender is known as bridge financing, gap financing, swing financing, or simply hard money loans. The most popular of these loans are taken out by investors who are upgrading a property.
A bridge loan fills the gap between when a buyer purchases a property and is able to take out a more long-term loan. A bridge loan can only be taken out for short periods of time (generally between 1-12 months) and it is expensive in comparison to other forms of financing.
Here is what’s great about a commercial bridge loan
Commercial Bridge loans are less time-consuming and easier to attain than other types of loans. This is because Commercial Bridge loans are collateral-based loans. That is, they typically require you to pledge some kind of commercial property you already own or a property you will own soon as collateral for the loan.
Here’s what’s great about this: commercial loan lenders will examine the value of the collateral put up by the borrower rather than evaluating the borrower’s own creditworthiness.
Therefore, if you have bad credit and have repeatedly been rejected by banks or lending institutions because of it, a bridge loan may be what you need.
If your credit score is below-average, before applying for long-term loans such as mortgages, know that it is highly unlikely that any lender or bank will provide the service for you, as lenders are typically only in service for borrowers with high credit scores.
As an alternative to credit or poor credit, you can turn to bridge loans, which will make getting one easier and the process less time-consuming.
Here are a few situations where bridge loans are ideal, and what they can do for you when you purchase commercial property.
Upgrading your current business
In order to move to a new business location, you’ll need not only to buy the new property, but also to pay off the mortgage on your old one.
A seemingly simple task becomes more complicated once you take into account that there is little likelihood that you will be able to convince a lending institution to approve your plan because they generally aren’t very apt to lend money to those looking to start a new venture that will bring in more money than they currently make.
Lending institutions are not usually interested in this sort of arrangement, and you probably won’t get approved. If this is the case, you’ll want to look into bridging loans.
You can apply for bridge loans; use the new property as collateral, cover up your expenses of buying and paying off your old liabilities towards your old store, and pay off the bridge loan once you start earning from your new store.
To take advantage of a buying opportunity
You need to act fast to be sure you grab that high profit property before someone else does.
Some companies compete to purchase properties which can potentially bring in great profit. You might not be able to seize the chance if you don’t act soon.
So, even if you’re short on cash now, you might still want to buy the property to profit from it later.
This is an ideal situation for obtaining a Bridge loan, then using the money you obtain from the loan to make an immediate down payment on that piece of property you have your eye on, and make monthly payments on the property until you find something more permanent.
For rehabilitation purposes
If you own a commercial property, you may not be making the most of it and it may not be performing at its fullest potential.
It may need a lot of renovations and repairs in order to attract more clients or tenants. Bridge loans are best in these situations and they’ll allow you to transform your poor-performing space into a profitable space.
Bridge loans are for folks like you who are trying to improve their properties in order to attract new sources of more long-term financing.
When your credit rating is low
Bridge loans are of great help here as they not only offer emergency financing but they also help improve your credit score.
Why use a bridge loan if it’s not to make a large purchase or an investment in your business? By using it to make timely payments, you will be able to boost your credit score tremendously until you’re eligible for long-term financing.
People use commercial Bridge loans primarily to raise their credit score, on the back of which they hope to obtain long-term traditional forms of financing.
There is merit to boosting your credit score and it is a legitimate way to do it. Many rehabbers do this trick a lot and you may want to as well if you are in a tough financial spot because of a poor credit score.
Those are the cases when you can use bridge loans as the best financing solution to buy UK commercial property.
Focusing on more essential details about bridge loans that might help you figure out if these loans are best for you to purchase your property.
This is how a standard bridge loan would function.
Loans for borrowing amounts from £30,000 TO £3 Million
The term of the loan ranges from 1 to 12 months, depending on the financial requirements of the person borrowing.
Usually, these loans require the borrower to have a loan-to-value (LTV) ratio of 70%.
Around 20% of the value of your property needs to be equity. That way you can borrow up to 80% of the property value from a commercial property loan lender.
Why is Bridge Direct the top choice for a bridge loan?
At Bridge Direct, we give you a guaranteed instant decision on all bridging loan applications. We have over 30 years of experience with loans and will take the time to get to know you and offer you the best possible option.
You can call the Bridge Direct team on 020 3126 4969 or complete our contact form, to get your free instant decision today!