How commercial bridging differs
Commercial property is valued differently from homes. Its value depends heavily on its income, the length and quality of the leases, and the strength of the tenants, as well as the building itself. A vacant office or a shop with a lease about to expire can be worth noticeably less than the same building let on a long lease to a sound tenant.
For that reason, lenders typically lend less against commercial property than residential, commonly up to around 60% to 70% of value. Some lenders lend on the open market value, while others use a value assuming a sale within a limited period, such as 90 or 180 days, which can be lower.
Specialist property such as pubs, hotels, care homes, petrol stations and other trading businesses is valued partly on the business, and fewer lenders accept it. Where they do, they look closely at trading history and the operator.
What lenders look at
A strong commercial case gives the lender a clear view of the building, its income and the plan. Expect lenders to ask for:
- A tenancy schedule with lease terms, rents, break dates and rent reviews
- Details of the tenants and their payment history
- For owner-occupiers, business accounts and projections
- The energy performance certificate, as minimum standards apply to most let commercial property in England and Wales
- Any planned works, lettings or change of use, with costs and timescales
Environmental searches, asbestos surveys and planning history may also be needed, particularly for industrial sites or older buildings.
Common uses
Commercial bridging is often used where a commercial mortgage is not yet available. Examples include buying at auction, completing a purchase where the bank's process will take longer than the seller allows, or buying a building that is vacant or needs works before it meets term lending criteria.
Investors use bridging to buy under-let or poorly managed buildings, improve them, re-let them on better terms and refinance at the higher value. Businesses use it to secure premises before a commercial mortgage is finalised. Some buyers acquire commercial buildings with a view to converting them to residential use, in which case planning or permitted development rules become central to the case.
Interest is usually retained or rolled up, although some lenders allow it to be paid monthly where the income supports it, which can increase the net advance.
Who commercial bridging suits
Commercial bridging suits investors, developers and businesses who need to act before a commercial mortgage can be arranged, or whose property does not yet meet term lending criteria. That includes buyers of vacant or under-let buildings with a plan to re-let them, auction buyers, owner-occupiers securing premises, and developers buying buildings for conversion.
It is less suited to stable, well-let property where a commercial mortgage can be arranged within the timescale, as term finance is normally cheaper over a longer period. We consider whether a bridge is needed at all before comparing lenders.
Planning the exit
The usual exit is a commercial mortgage, which will be assessed on the rental income or business profits compared with the loan payments, as well as the value. A building that is let on reasonable terms, with a clear tenancy schedule, is easier to refinance. If the plan depends on finding a tenant, allow realistic time for marketing, negotiation and lease completion.
Where the exit is a sale, lenders want evidence that the building can sell at the expected price within the term. For a change of use, they will want the planning route and the costs of conversion to be clear.
Some lenders offer bridge-to-term structures for commercial property, where the loan moves onto a longer-term facility once agreed conditions are met. We compare that option alongside a standalone bridge. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation and checks.
Our guides to what a commercial mortgage is, commercial mortgage deposits and commercial mortgage rates explain how the term loan that repays the bridge is assessed.
Bridging finance for commercial property: getting started
Commercial bridging finance covers a wide range of buildings, and some property types have their own pages with more detail: offices, pubs and hotels, premises your own business will occupy and mixed-use buildings with flats above. Where VAT is charged on the price, a VAT bridging loan can cover it until HMRC repays it.
Because the usual exit is a commercial mortgage, it helps to understand how term lenders will look at the building. Our guides to commercial mortgages and buying commercial property cover that side. Instant Quotes gives indicative figures from lenders on our panel that offer commercial bridging, as a starting point.
Business bridging loans
A business bridging loan is a commercial bridge taken by a company or partnership, secured on property. Businesses use one to buy premises before a commercial mortgage is ready, to complete on a building at auction, or to release equity from property they own while a longer-term facility is arranged. The security is the property, so lenders look at its value and the exit as much as at the business's accounts.
Most lenders ask for a personal guarantee from the directors, and the exit is usually a commercial mortgage, a sale, or a refinance once the building is let or improved. If the business will trade from the premises, our page on bridging for business premises covers owner-occupied cases, and bridge-to-term finance covers lenders that move the loan onto their own term facility. Business bridging finance is not regulated when it is secured on commercial property and used for business purposes; if your home is offered as security, we will tell you at the outset how the case will be handled.
