- Commercial finance?
- What types of commercial mortgages are available?
- What is development finance?
- Bridging loan?
- Regulated bridging loan?
- Unregulated bridging loan?
- What is an open bridge loan?
- What is a closed bridge loan?
- How much deposit will I need for a bridging loan?
- What are the timescales involved in a bridging loan?
Updated 21st May 2021.
Commercial Finance Advisors
Our Mortgage Experts Online accredited advisors are specialists in commercial finance mortgages. As such, our expert’s knowledge will help you to find the right commercial finance mortgage on the market to meet your specific requirements.
From big high street banks and building societies, to smaller more niche mortgage lenders, there is a lot of choice out there. As such, this may feel completely overwhelming to you and you may have no idea where to start. We can offer you guidance and help you navigate the complex world of commercial finance mortgages.
The brokers we work with are whole of market and offer completely unbiased advice, ensuring that you get the absolute best deal available.
Scroll down for more information and FAQ’s.
Commercial finance covers a wide range of areas. In its simplest form, it’s finance for business purposes – sounds obvious, doesn’t it? Because there are lots of different reasons someone might require commercial finance. They tend to fall within one of two categories, these are:
- Owner occupier mortgages (generally used to purchase your trading premises for your business to operate out of)
- Commercial investment mortgages (where you will be renting the commercial premises to third party)
What types of commercial mortgages are available?
There are commercial finance loans available for a vast variety of commercial reasons. Because they all require different criteria to be eligible, and this is where your commercial finance mortgage expert will be able to advise on the best way forward for your circumstances.
The following property types (to name a few) would typically require commercial finance:
- Retail commercial investment – Retail units, retail parks and multi-unit developments.
- Office properties – Office blocks, business centres etc.
- Agricultural – Farms, buildings and building on farmland.
- Semi commercial – For example, it could be a row of shops with flats above shops which will be let out.
- Leisure – Pubs, clubs, restaurants, gyms, hotels, leisure centres and indoor activity centres.
- Professional properties – Private schools, nursing homes, doctor’s surgeries and solicitor’s office.
What is development finance?
Development finance is used for bigger developments such as turning an old office block into apartments. Also, construction on land with planning permissions (with the exception to this being building your own home). This sort of commercial finance is normally for experienced developers. And as such, and the underwriters will have to be comfortable that the development costs and gross development value are realistic.
Like a bridging loan, the interest is rolled up so the longer the development takes to complete the more costly it will be. As a result, the maximum time that the development finance remains in place is 2 years.
The information needed to get the deal agreed will be lengthy, So, this is where your commercial finance mortgage expert will really help. Of course, they will help you to ensure that your proposal has everything in place prior to an application being submitted. Firstly, any necessary planning permission, secondly any information around building regulations, contractors, total costs, duration of the project. This is only a small example of what will be needed. Each case will be different, as such, using a commercial finance mortgage expert will give you the best chance to get your deal agreed.
What is a bridging loan?
Bridging loans are most commonly used by borrowers who firstly, are looking to purchase a property having put down a deposit as with a normal property sale. Secondly, they use the bridging loan to finance the balance of the purchase. These are typically used when purchasing a property which is either uninhabitable or un-mortgageable. As a result, this then allows the borrower to complete any work that may need undertaking to make the property habitable. When the bridging loan is agreed, the lender will want to know what your exit strategy is. This is typically either by getting a mortgage to pay back the bridging loan, or through sale of the property. Always speak to a commercial finance advisor before agreeing to anything.
Because bridging finance can also be used to break a chain – that is to say that if a borrower is waiting on the sale of their home and need to complete on a new property before the sale has gone through, the bridge can fill the financial gap until the old property sells.
Auction buyers are another example of when a bridging loan can be vital. This is due to the time constraints when purchasing at auction (typically needing to complete within 28 days), and also some auction properties are not habitable/mortgageable. Reason for this, could be down to it having no bathroom, no kitchen, or requiring structural work.
Because the interest on bridging loans is rolled up there is much less reliance on what income the borrower has. As such, it’s all about the exit strategy. Most bridge loans are either for a 6-or-12 months duration, and there are no monthly payments to make with the interest being rolled up (compound interest) until the loan is paid back.
The interest rates and fees associated with bridging loans are more expensive than a standard mortgage. So, therefore it is vital to make sure all costs have been factored into the purchase. Your commercial finance mortgage expert will be fully regulated by the Financial Conduct Authority. As such, will give you the best advice possible to ensure that a bridging loan is the correct and most cost-effective way for you to achieve your end goals.
Regulated bridging loan.
A Bridging loan is classed as regulated when it is secured against a residential property that you are currently living in, have previously lived in, or plan to live in. There is more protection when the loan is regulated as its protected by the Financial Conduct Authority. Because of this you get another level of protection, your commercial finance mortgage expert will always be regulated by the Financial Conduct Authority when any borrowing is regulated.
Unregulated bridging loan.
This is when the loan isn’t regulated. That means that the loans are more tailored to the circumstances and can therefore be more flexible. Because the loan isn’t regulated this gives the lender more flexibility to take a common sense approach to a deal. Your commercial finance mortgage expert will have access to the whole of the market and will advise on the best option for your circumstances.
What is an open bridge loan?
This is when there isn’t a fixed date for the loan to be repaid. The normal scenario would be for the lender asks for the loan to be repaid within 12 months. Whatever the reason you need the loan to be open, buying a property and not sold your residential, or maybe looking to buy one , renovate and sell. The longer the loan is in place the more interest you will pay, this is a key point. Exit plan will need to be evidenced with all lenders and discussed from the outset with the commercial finance advisor.
What is a closed bridge loan?
Very simply, this is when there is a date in place for the bridge loan to be repaid. Most commonly used when you have a house sale which has been exchanged but not completed and you need the funds before to purchase your next property.
How much deposit will I need for a bridging loan?
The key point to remember when looking at a bridging loan is the maximum loan to value (LTV) will include the rolled-up interest and any fees. The standard maximum LTV is 75%, however this varies depending on the lender. Some lenders will allow a 100% LTV bridge loan, but you will need to use other assets as a security and potentially cross charge on other properties/assets.
Can I get a commercial mortgage if I am recently self-employed?
This will be dependent on how recent you became self-employed. You would need to have been trading a minimum of 9-10 months and have a proven track record in your industry. Even with this, the number of lenders would only be small. You would also need a good deposit to strengthen your case.
What are the timescales involved in a bridging loan?
One of the reasons bridging loans are used is the speed of completion and flexibility in lending criteria. Some loans are arranged with 7 days, however a safer timescale would be 14 days. Each case is different, and your mortgage expert will be able to give you a clearer timescale once they know the whole situation.
If you would like to discuss any aspect of commercial finance, please complete our quick enquiry form, or contact us on 0300 124 5655