Finance Blog | Commercial Lending, Essex, London | first 4 Commercial

Advantages of Bridging Finance

Bridging finance is a type of short-term loan used to bridge the gap between two loans, typically when buying a new property before a current property has sold. A bridge loan is not always recommended due to the high interest of the loan, but when used correctly in specific circumstances it can be advantageous for the recipient.

Let’s take a closer look at some of the main advantages of bridging finance:

Short-Term Finance

Bridging finance is never long-term, so with a short-term loan there are often fewer risks, as you’re going to pay it in less than year in most instances. In fact, not many bridge loans last longer than year, so it can be paid off in a very short period, usually once your current property as sold or the finance from a mortgage as been cleared.

Fast Purchasing

One of the main benefits of bridge financing is making a fast purchase. Because a bridging loan is cleared very quickly, it allows buyers to purchase a property they may not have been able to because they are still waiting to sell their home or for their mortgage to process, so can avoid possibly losing out on the chance of buying a dream home.


Most types of bridging finance are very flexible, allowing the borrower to pay of the loan in a way that best suits them. This can be in the shape of monthly instalments or paying off most of the loan once the appropriate finances have been acquired.


What is a Semi Commercial Mortgage

A semi commercial mortgage features aspect of both residential and commercial mortgages. It’s not the most common type of mortgage due to the unique circumstances a property requires to quality for a semi commercial mortgage.

To qualify for this type of loan, a property needs to be both residential and commercial. This typically comes in the shape of a small business that has a commercial area on the ground floor and a residential area above the business.

Because on part of the property is used commercial while the other is used as a personal residence, a semi commercial mortgage can be arranged to accommodate the unique circumstances. Common examples of a property with semi commercial elements would be a pub or shop on the ground floor and a flat on the top floor.

Loan amounts are similar to commercial mortgages, typically falling between 60% and 75% of property value, while lenders calculate the criteria of the loan in the same manner as a commercial mortgage, basing it around the accounts, profits, and business plan of the borrower.

Some lenders provide 100% semi commercial mortgages, although you do require a form of additional security, which is most typically owning another property. Many businesses looking to expand use this to their advantage, especially when renting the property to residents.

In fact, a semi commercial mortgage is treated as a type of commercial mortgage by lenders, meaning you need to seek out a commercial mortgage financier to acquire such a loan.


What are Commercial Finance Brokers?

Trying to get a loan to buy a business is rarely easy. Trying to acquire a commercial loan from a borrower is a time-consuming, and often stress inducting, process.

There is a lot of back and forth between the individual borrowing and the lender, which is typically a bank or building society, leading many to hire the services of a commercial finance broker.

What is a commercial finance broker?

A commercial finance broker is someone that works to get the best possible financial solution for clients seeking a business loan. People hire the broker as the go-to between them and a borrower, helping to find the best possible deals for securing a business loan.

What does a commercial finance broker do?

A commercial finance broke is an expert at finding the best rates and deals for any type of business loan. They have contacts in the industry that allows them to procure better deals than most people cannot usually find themselves

They’ll speak with lenders, conduct market research, and generally do everything they can to secure the best rate possible for a business loan. Furthermore, a commercial finance broker does much of the leg work for securing a business loan.

There is a lot information required to secure such a loan, and the broker can work diligently to get all the necessary information, best pitch your business plan to the lender, and avoid mistakes that could see the loan rejected.

In most instances, they use their connections to fast-track the application process and greatly improve the chances of getting the desired loan.


Tips for Getting a Business Loan

Getting a business loan is far more difficult than securing a personal loan, as there are much higher risks when lending to a business. There are stricter rules in place for getting a business loan, which became even harder to qualify for after the financial crisis.

Therefore, being a small business owner and securing a loan to finance your business is rarely easy. However, there are ways to help improve your chances of getting a business loan.

Clearly explain the plans for the loan

When talking to a lender you must clearly explain the plans of the loan and how it will impact the business. This basically means providing a solid business plan that can explain how the loan will be used in your business.

Keep the plans realistic and watertight – pay close attention to projected revenues and accounts, even consider hiring an accountant to give the figures a look over.

Review your credit history

When starting up a new small business, applying for a loan faces much more scrutiny from banks. They will want to know about your personal credit history, so be sure to review this and do whatever you can to make improvements should it be in poor condition.

For those unaware, you can request a credit report to ensure everything is in good order and there are no mistakes or unexpected surprises when reviewed by the lender. If your credit history isnt great, you’ll need to take time to repair it before applying for a business s loan.

Show that you can repay the loan

Every lender wants the borrower to demonstrate their ability to repay the loan, so this should be part of your business plan. You’ll need to make predictions about your revenue and explain current cash flow and clearly show that the business is growing – nobody wants to finance a failing business.


How are Commercial Mortgage Rates in the UK at the Moment?

There are currently two types of commercial mortgage rates in the UK – fixed and variable. The rates are generally higher than a residential property, namely due to the higher risk a lender faces when providing a mortgage to a business. Deposits are therefore much higher, ranging from 15% to 30%, with lower deposits usually being deemed a higher risk and coming with increased interest rates.

Fixes rates for commercial mortgages remain the same for the entire duration of the loan or for a fixed period, after which they revert to a variable rate. For a variable rate, the amount changes depending on the current base rate from the Bank of England, while other commercial mortgages are also influenced by the base rates.

The base rate in 2018 is 0.5%, with the Bank of England recently deciding to hold the same interest rate to help stimulate growth. This is good news for anyone with a commercial mortgage, as expected changes tend to create a lot of unrest, scaring away many investors due to increases in market prices.


Open Bridging Vs Closed Bridging Finance

Like any other kind of finance today, bridging loans are often more complex than they might appear on the tin. For example, did you know that you get two different forms of bridging loan; open, and closed?

A closed bridging finance deal is one where the lenders knows exactly what will be paid back, and when. It’s known to them how you will manage the payments, and it will make it much more likely for you to get the loan if you can provide the ample needed proof. They are usually more specific and secured, and thus come with the benefit of lower interest rates for being able to prove that you fit in with their criteria.

It’s less risk to the borrower, and thus is a very popular option for those who can provide the needed information

An open bridging loan, though, is very much different. Open bridging is available for those without a clear exit strategy. You don’t need to know exactly the path you will take to pay it off; you need only secure a date of repayment.

Most of the time, this will be seen as a higher risk option for the lender and thus they may choose not to give you the investment. That’s usually also tied in with the fact that you would be expected to pay the loan back at a quicker period of time than beforehand or risk paying large fees for missing your payment date.


Bridging Loans with Bad Credit Scores

Like any other form of loan, the chances of your success when it comes to securing a loan comes down to your credit score. Someone with a bad credit score, naturally, might struggle to get the kind of finance that they would have been hoping for.

Therefore, those with poor to mediocre credit scores often avoid even attempting to go for something like a bridging loan. You can, though, get a bridging loan even with a poor credit rating; there is no set-in-stone pathway to decide if you are eligible to receive a bridging loan or not. Often, it’s decided on a case-by-case basis, which should make it easier for you to be successful in your application.

The first thing that you need to do is speak with an expert financial advisor. They can take a look at the strength of your credit, and help determine if you are likely to be seen as a successful candidate or not. For example, you might be in good present financial health but have a chequered history.

If you could show the lender that you have a legitimate exit strategy that allows you to pay the loan off with ease, then bridging loans can be secured even with poor credit. It’s all about making up for the deficit in trust that a poor credit history creates by being able to show where you will make up that shortfall.

With expert assistance, this isn’t as challenging as it sounds.


Can Landlords Receive Bridging Loans?

In this modern era of financial short-termism, it’s not uncommon for a landlord to need a cash flow gap fulfilled. While many options exist to fill that hole in the books, one of the best and most proven solutions around at present is that of a bridging loan.

Bridging loans are very popular, offering you all the help that you need to make the right call on your financial shortfall. They usually allow you to pick up a small-to-medium sized loan to cover an investment or a realistic cash flow issue.

A landlord might find use for a bridging loan if they need help:

  • Making up the cash needed to add a new property to your portfolio.
  • Refurbishment and property upgrades to improve portfolio value.
  • A fast-acting solution that can help you to meet your debts and pay off costs.

They often provide landlords with an easy way to secure short-term finance with the promise of repayment. So long as you can provide an exit plan – a provable range of solutions that shows off how and when you will pay back – you can often secure low interest rates to make your bridging loans more affordable to receive.

Either way, you might find that a bridging loan will solve the problem that you face. With buy-to-let mortgages no longer as prevalent as they once were, it’s important that you can seek out alternative forms of investment. With bridging loans, you can find the perfect solution to do just that.


Is Bridging Finance My Last Resort?

For some reason, the concept of a bridging loan – a short-term loan to cover a cash flow issue that can be corrected shortly – has become increasingly confusing. Many people imagine, for example, that a bridging loan is the last resort, the kind of finance that you only go for when nothing else is available.

To say that is true, though, would be a massive disservice to what has become a very popular means of financial security. They are actually very smart solutions which can help you out of a tough spot momentarily. Market challenges can strike us in all manner of different ways, and one of the most common issues that you might find is short-term cash problems.

With a bridging finance loan, you can cover that shortfall with relative ease. It allows you to get a much more reliable means of securing the cash that you need immediately. It has become a very popular means of loan for good reason; it covers a more favourable loan period. It’s viewed on its own merits each time, too, rather than trying to make you fit into a very specific loans structure.

For that reason, it should often be a first port of call when you need a specific sum and want to avoid borrowing an excess of cash, or you wish to avoid paying the loan over a long period of time.

Either way, you’ll find that bridging finance is far from a last resort.


Tips for a successful loan application

When you’re applying for a loan, it’s important that you try to get your application right the first time around, especially if you need the money for something time sensitive. In this post, we’ve complied a few tips to help you achieve a successful loan application.

  • Ensure you give the correct information. The smallest of mistakes can negatively affect your application, and even get it rejected. Check spellings, your street address, and the accuracy of all the information you’ve provided.
  • Check your credit report before you apply. You can use a wealth of various credit checking sites to see what your current score and report is. Do this before you apply for a loan to avoid wasting both your time, and the financial lender’s time.
  • Build your credit history. If you’ve never had a loan or a credit card, it’s difficult for a financial lender to figure out how good you are at managing money and repaying what you owe. This could stop them from lending to you.
  • Don’t apply if you’re currently paying back another loan. This is a cycle of debt, and the financial lender will be wary about lending to you while you’re still paying off other loan debt.
  • Understand how the loan works. You won’t get assistance by asking nicely, but by proving that you understand the policy of the company, and how paying the loan back works.

Using these tips, you should be well on your way to creating an excellent loan application.

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