May 5, 2020
Commercial Bridging Loans.
A commercial bridge loan is a useful tool in any property investor’s armoury and can be used for multiple strategies when buying, refurbishing or re-positioning commercial assets.
When to Use a Commercial Bridge Loan
There are a number of common scenarios where experienced property investors deploy the flexibility and speed of funding via a commercial bridge loan so assist with their projects.
For example, when buying a property from an auction house or an LPA receiver in England and Wales, the speed you can complete the acquisition may be the deciding factor on whether you win the property or not. Although there are many variables, such as the speed and efficiency of your solicitor, the complexity of the legal work i.e leases, searches, title deeds and how long the valuation will take; the acquisition using bridging finance will always be much quicker than using a normal commercial mortgage lender.
Other common uses for bridging loans in the commercial property space are when you plan to refurbish or reposition the asset, often taking advantage of the governments change in policy under “permitted development rights”; defined as:
“Permitted development rights are an automatic grant of planning permission which allow certain building works and changes of use to be carried out without having to make a planning application.”
This is the perfect opportunity to utilise a commercial bridge loan, for example when converting a disused office in a great central location in London, into a new affordable apartment block or HMO. Not only is it possible to raise the refurbishment or development costs (within certain parameters), you can also get bridging finance when the property would otherwise have been unmortgageable i.e if you don’t yet have planning consent, you need to split or merge the title, or the perhaps the building is in fact derelict/uninhabitable at the time of acquisition.
What Else Should I Know About Commercial Bridge Loans in the UK?
One common factor with all types of bridging finance is that the loan is based purely on the “property asset” value. This means the surveyor, when they attend the property to conduct the valuation, will only be looking at the bricks and mortar value of the underlying property asset, or “vacant possession – (VP)” value. There will be no value attributed to the revenue that the business generates, no EBITDA multiples or goodwill value.
This can often be a surprise to some property investors when they look to acquire operating businesses, which may be very profitable, but when based in a modest property asset, the amount that can be borrowed may be less than expected.
Other factors that affect commercial bridging loans are the appetite of the specific lender for that particular asset class. The term “commercial property” encompasses a wide variety of business premises, from offices and nightclubs, to care homes and churches. Each of these commercial subcategories presents their own set of challenges, risks and opportunities. This is why when searching for a bridging loan, it is imperative to use the services of an experienced and specialist bridging finance broker such as Tiger Financial. For example, many bridging lenders in England view care homes and churches with trepidation, believing that if they had to call in the loan, to do so would represent a significant reputational risk.
However, other lenders may view the market demand and stable revenue stream from both these assets as a positive. It all depends on knowing which lender is right for your deal, which is where the help of an experienced broker is invaluable.
How Much Can I Borrow?
This depends on many factors and variables, such as asset class, location – including whether it is in England and Wales, or in Scotland and Northern Ireland, which have a lot less lenders providing funding, the credit status, experience and net asset position of the borrower, the strength of the covenant i.e the balance sheet of the company renting the property and the quality of the lease; the demand in the local area for the service being offered, the current status of the asset i.e whether in good condition or requires refurbishment, whether planning has been granted, how easy it will be to sell if the lender has to repossess, how easy it will be for the borrower to exit the bridging loan i.e via sale or commercial mortgage or how much the mortgage amount can be with the current income from the property.
As you can see, there are many things to take into consideration when applying for a bridging loan for a commercial property. However, the maximum LTV tends to be 70% of the vacant possession value for good quality easy to sell properties. However, for niche assets that will be harder to sell i.e land with no planning, this may reduce to 50% LTV or lower.
At Tiger Financial, we have access to specialist lenders who can arrange commercial bridge loans, refurbishment loans and commercial development finance from £100,000 to £100m+, across the full capital stack, from senior at 50% LTGDV up to 90% loan to cost and 75% LTGDV+ for mezzanine and equity deals.
Commercial investment term loans are also available for income producing properties above £5m.
How Much Will It Cost?
Each loan will be assessed by Tiger Financial, so that we can place your loan to the most appropriate lender. Once submitted, each loan is individually underwritten and priced, with no “off the shelf” rates. The cost will be very much contingent on the same factors that affect the LTV. However, for good quality assets in a good location, such as a cathedral city in the South East of England, you would expect a low LTV short term commercial bridge loan to start from around 0.6%pcm.
In addition to the monthly interest, you will need to pay a lenders arrangement fee, usually 2%, occasionally an exit fee depending on the risk profile of the transaction, as well as professional fees for your solicitor, the lender’s solicitor, as well as fees for any valuations/quantity surveyors/structural engineers etc that may be required for the transaction.
How Long Do Commercial Bridge Loans Take to Complete?
Most bridging loans take 3-4 weeks to complete. They can sometimes be quicker, but this is dependent on the preparedness of the legal pack, valuation and professional reports, and not least of all, your solicitor’s willingness and ability to work at speed. Rest assured, at Tiger Financial, we will monitor the deal through its lifecycle, ensuring a smooth and efficient loans process and pushing to achieve a successful financing outcome.
What Is the Role of a Broker Like Tiger Financial?
As a specialist bridging loan broker, we will take time to understand your situation and specific requirements so that we can tailor make a funding package that is right for your business.
We will run the financing process from beginning to end, preparing a funding pack as required, negotiating the best terms, monitoring through the underwriting and credit process towards legal completion. We will look ahead for problems, warn you of any pitfalls, and give you confidence that you will get the loan that your business needs, as quickly and smoothly as possible.
What Types of Property Can I Borrow Against?
Funding is available for most asset classes in England and Wales, including:
- Residential property
- Retail premises
- Commercial and semi-commercial property
- Golf Courses
- Hotels & B&B’s
- PBSA (Student accommodation)
- Petrol Stations
- PRS sector
- Development finance
- Investment Portfolios
- Industrial Units
- Nursing/care homes
- Mixed use properties
- Houses of Multiple Occupation (HMOs)
- Farms or agricultural property
- Offshore special purpose vehicles (SPV)
For loans in Scotland and Northern Ireland, there are far fewer options, so please call us to discuss.