Bridging Loans For Business

A bridging loan is short term secured borrowing, normally arranged for anything from a few weeks up to 24 months. It exists to solve a timing problem. You can see the money that will repay the loan, but it is not in your account yet, and the deal in front of you will not wait. That is the whole product in one sentence.

Because bridging is priced monthly and arranged quickly, it is both one of the most useful tools in commercial property finance and one of the easiest to misuse. This guide covers how it is structured, what it actually costs and how to tell whether your situation fits.

What bridging is, and what it is not

Bridging is secured lending. A legal charge is registered against property or land, the lender advances funds against the value of that security and the loan is repaid in a single lump sum at the end rather than amortised over years. There is no long application process built around trading performance, because the lender is not primarily backing your profit and loss. It is backing the asset and the event that will clear the debt.

That is the key difference from a term loan. A term loan asks whether your business can afford the monthly payment for the next five years. A bridge asks whether there is a credible, dated route to repaying the whole balance.

One important boundary. Where the security would be a property you live in, that is consumer territory and falls under a different regime entirely. We arrange business funding only, so the security we work with is commercial property, land, investment and development stock or assets held in a trading or holding company.

The situations bridging genuinely fits

Buying before selling. You have found the right premises or investment but the sale funding your purchase has not completed. A bridge secured on one or both properties lets you buy now and repay from the sale proceeds.
Auction purchases. Win the lot and you are usually contractually bound to complete inside 28 days. No mainstream term lender moves at that pace. Bridging is the standard answer.
A refinance deadline. An existing facility is expiring, a lender has gone quiet or a term has been called. A bridge buys you the months needed to arrange the right long term facility rather than signing whatever is closest to hand.
Property that is not currently lendable. No kitchen, no bathroom, a commercial unit mid conversion or a title issue to resolve. Most term lenders will not touch it until it is finished. A bridge funds the work, then you refinance onto a term facility once the asset is lettable or saleable.
A deal that needs to complete fast. A motivated seller, a discount for speed or a chain about to collapse. Where the discount or the saved cost exceeds the cost of the bridge, the maths works.

How the money is secured, and what loan to value means

A first charge means the bridging lender sits first in line on the title. If the property is sold or repossessed they are repaid before anyone else. That is the cheapest and most straightforward structure.

A second charge sits behind an existing mortgage. It is used where you want to release equity without disturbing a good rate on the existing loan. It costs more, because the second charge lender only gets paid after the first is cleared, and it needs the first lender's consent in the form of a deed of postponement. That consent can take longer to obtain than the loan itself, so flag any existing charge at the outset.

Loan to value is the advance expressed as a percentage of the security value. As a broad guide rather than a quote, first charge bridging on standard property is commonly available up to around 70% to 75% of value, with lower percentages where the asset is specialist, part built or hard to sell. You can usually push the effective leverage higher by adding a second property as additional security, which spreads the lender's risk across a larger pot.

Two valuation points catch people out. Lenders generally work from a 180 day marketing period rather than an optimistic agency appraisal, and on a purchase they normally lend against the lower of the price you are paying and the valuation figure.

How interest is handled

Bridging interest is quoted monthly, not annually, which makes it look cheaper than it is until you multiply it out. There are three ways it can be paid.

Rolled up. Nothing leaves your bank account during the term. Interest accrues and is settled with the capital at the end. This preserves cash flow, which is usually the point of a bridge, but you pay interest on interest as the balance grows.
Retained. The lender holds back the expected interest for the full term from the advance on day one. You receive a lower net sum but make no payments. Where you repay early, unused retained interest is normally refunded, so check the redemption terms.
Serviced. You pay monthly interest from income, keeping the balance flat. Cheapest overall, but the lender will want evidence that the income covering it exists.

Rolled up and retained are the most common on business bridges, because a bridge usually exists precisely because cash is tied up elsewhere. The practical consequence is that you must borrow enough to cover the interest as well as the purchase or you will run out of funds before the exit lands.

Why the exit is the thing lenders actually assess

Underwriters spend most of their time on the exit, not on your accounts. The exit is how the loan gets repaid, and it needs to be specific. A sale with evidence of comparable values and a marketing plan. A refinance with a lender named and indicative terms obtained. A planning consent granted, not applied for. A contracted receipt with a date.

Weak exits are the main reason bridges are declined, and the pattern is consistent. Vague optimism about selling, a refinance that depends on an income or a credit profile that does not yet exist or a timescale that leaves no margin for a slow conveyancer. Build the term with slack. If your realistic exit is nine months, arrange twelve. Extending a bridge under pressure is expensive, and a lender who has to be asked for more time will price for that.

What the total cost looks like

Interest is only part of it. Budget for all of the following.

Arrangement fee. Typically in the region of 1% to 2% of the loan, usually deducted from the advance.
Monthly interest. Quoted per month. First charge lending on clean security sits at the bottom of the market range, with second charge, part built assets and unusual titles priced above it.
Valuation. Paid upfront to an independent valuer. Several hundred pounds on a straightforward residential unit, into the thousands on commercial, mixed use or large sites.
Legal fees, twice. You pay your own solicitor and, in almost every case, the lender's legal costs too. Get both estimates in writing before you commit.
Exit or redemption fee. Not universal, but some lenders charge a sum on repayment. Check whether it is a percentage and whether early repayment triggers a minimum term charge.
Broker fee. Ask any broker how they are paid, whether by fee, by commission from the lender or both, and get the figure in writing before you proceed.

Add those together and compare the total against the benefit the speed is buying you. A bridge that costs a few percent of the purchase price to secure a property bought meaningfully below market value is a good trade. The same bridge used to delay a decision is not.

On speed, a clean first charge case with a cooperative solicitor and a straightforward title can complete inside two to three weeks, and faster where a valuation can be dispensed with or a title is already in hand. Second charges, commercial security, corporate structures and anything needing third party consent take longer. The limiting factor is almost always legal work rather than credit, so instruct a solicitor who does bridging regularly.

When bridging is the wrong answer

Bridging is the wrong product where the real problem is not timing. If a business is loss making and the bridge is being used to cover trading losses, the end of the term arrives with the same problem plus a larger debt. If the exit is a refinance that no lender has yet indicated appetite for, you are gambling on a future approval. If the asset is slow moving and the term is tight, the pressure to accept a low offer at month ten will cost more than the interest saved.

Three honest alternatives worth testing first. A term loan or commercial mortgage where you have time and the property is already lendable, because the annual cost is far lower. Asset refinance where capital is tied up in plant, vehicles or equipment you already own. An invoice based facility where the cash is actually sitting in your debtor book. Our job is to compare those against a bridge rather than default to the fastest option, and with 50+ lenders compared we can price the alternatives side by side before you commit.

What to do next. Pull together the property address and tenure, a current value or price, the amount needed, the term you think you need and a one paragraph description of the exit with dates. That is enough for us to come back with indicative terms and a realistic timetable. Business to business commercial lending of this kind sits outside FCA regulation, so read the facility letter and the default terms carefully, and ask what happens if the exit is late before you sign anything.

How quickly can a bridging loan complete?

Two to three weeks is realistic for a straightforward first charge where title is clean and solicitors move promptly. Faster is possible on simple cases. Second charges, commercial security or anything requiring another lender's consent typically run three to six weeks, and legal work rather than credit approval is usually what sets the pace.

Can I get a bridging loan with poor credit or no accounts?

Often yes, because the assessment centres on the security and the exit rather than trading history. Adverse credit, recent arrears or a newly formed company need to be disclosed upfront, as they can affect the rate and the loan to value offered. What cannot be worked around is a weak exit, so put the effort there.

What happens if I cannot repay at the end of the term?

Speak to the lender early, well before the redemption date. Options usually include a formal extension, a refinance onto a term facility or a short period of forbearance while a sale completes, all of which carry cost. Leave it until the term has expired and default interest applies, which is materially higher, and the lender gains the right to take enforcement action over the security. The way to avoid this is to build a longer term than you expect to need at the outset.

Bridging loans for business: how they work and what they cost