Commercial Bridging Loans Australia

When a business requires short term finance for a large purchase or to move to new commercial premises, a commercial bridging loan could help. A commercial bridging loan is a type of a secured business financing. In this article, learn what a commercial bridge loan is, gain an understanding of commercial bridge loan rates and the commercial bridge loan lenders you can apply with today.

You can get a bridging loan arranged in less than 24 hours and the reassurance of borrowing from one of Australia’s leading bridging lenders.

Quick application for a bridging loan?

Apply with Lend for a simple, fast & secure way to access business bridging finance. There is no impact on credit score and Lend will match businesses with the most appropriate business bridge loan lenders to their business circumstances.

Glossary for this page

1. Commercial Bridging Loan:
A short-term loan used to bridge a gap in financing until long-term financing can be arranged or an existing property is sold.
2. Secured Loan:
A loan that is backed by collateral, such as property or other assets, which the lender can seize if the borrower defaults.
3. Loan-to-Value Ratio (LTV):
A financial term used by lenders to express the ratio of a loan to the value of the property being purchased. For example, an LTV of 70% means the loan amount is 70% of the property's value.
4. Exit Strategy:
A plan for how a borrower will repay a loan, typically required for short-term financing like bridging loans. Common exit strategies include selling a property or refinancing with a long-term loan.
5. Interest-Only Loan:
A loan where the borrower only pays the interest on the principal balance, with the principal balance repaid at the end of the loan term.
6. First/Second Mortgage:
A first mortgage is the primary loan secured by a property, while a second mortgage is additional financing secured by the same property, often with higher interest rates and more risk for the lender.
7. Asset:
Any resource owned by a business that has economic value, such as property, equipment, or inventory, which can be used as collateral for loans.
8. Property Valuation:
An assessment of the value of a property, typically conducted by a professional appraiser, which is required by lenders to determine the amount they are willing to lend.
9. Arrangement Fee:
A fee charged by lenders to cover the costs of setting up a loan, usually a percentage of the total loan amount.
10. Early Exit Fee:
A penalty charged by lenders if a borrower repays a loan before the agreed-upon term, often applied to recoup lost interest.
11. Commercial Mortgage:
A long-term loan used to purchase, refinance, or redevelop commercial property, typically with lower interest rates and longer terms compared to bridging loans.
12. Caveat Loan:
A short-term, fast-access loan similar to a bridging loan, often used to cover immediate financial needs with the property serving as collateral.
13. Renovation Financing:
Loans specifically designed to fund the renovation or refurbishment of a property, often offered as part of a commercial bridge loan package.

What is a Commercial Bridging Loan?

A business bridging loan is a short-term financing option which is used when there is a gap in financing that needs filling quickly, similarly to a caveat loan. Bridge loans are an interim source of finance before a more permanent financing solution is found, i.e. a commercial bridge loan helps to ‘bridge’ a payment gap.

Commercial bridge loans are primarily used for commercial real estate purchases to quickly close on a property. As an example, a business may not have the funds to purchase new commercial premises until they have sold their existing one, though selling before the purchase of another one could cause severe disruption to the business. The bridging loan provides access to cash during this transition period to fund the purchase of the new premises. Bridge loans on a property are typically repaid when a property is sold or when new finance such as a commercial mortgage is agreed.

In most cases, property is used as security for the loan but bridging finance can also be used to fund the purchase of key business assets, for example yellow goods and heavy equipment. It can be difficult to precisely match up the sale of an old asset with the purchase of a new one. The bridging loan provides access to cash during this period to fund the purchase of a new asset before the old asset is sold. Any form of asset can be used to secure the loan, property is just the most common.

Properties Eligible for Commercial Bridging Finance

A wide number of commercial properties can be financed through a bridging loan, including:

  • Retail locations, such as restaurants and shops
  • Offices
  • Warehouses
  • Factories
  • Working farms, including land
  • Hotels
  • Pubs, nightclubs
  • Care homes
  • Business Parks
  • Residential investments
  • Semi-commercial properties (commercial property use usually has to be 40% /50% of buildings total use)

 

 

Commercial Bridge Loan Rates

Commercial bridge loans are a short-term financing solution that normally have slightly higher interest rates than conventional mortgages. This reflects the increased lender’s risk due to the uncertainty of the existing property’s pending sale. It’s worth noting commercial property is usually less liquid than residential property, further increasing lending risk too.

Due to the short-term nature of bridging loans, interest rates are normally presented as monthly as opposed to annually. As a guide, an interest rate of around 1% per month is a good benchmark. Bridging Loans can begin at around the 0.5% mark but for riskier applications, which could be due to the property or borrower in question, rates can be around 1.5% per month.

Most lenders will also charge an arrangement fee, which is usually around 2% of the loan amount. An early exit fee is also sometimes charged, though it might be worth looking to negotiate this if you don’t know exactly when a property sale is due to complete or when new finance is due to land.

Pros and Cons of Bridging Finance for Companies

ProsCons
✓ Take advantage of immediate opportunities that you may lose out on waiting for the sale of an existing property.

✓ Borrow against asset value, not just credit score.

✓ Loans are generally processed quickly.

✓ Second mortgage possible, if you have an existing mortgage bridging lenders can still lend against available equity in your property.

✕ Generally more expensive than standard mortgage.

✕ Property valuation likely required, incurring extra fees.

✕ Could face issues if unable to sell existing property prior to expiration of the terms of the business bridging loan. Clear exit strategy required.

Usual Terms for a Business Bridging Loan

Whilst the following may not apply to every lender, the general terms on a commercial bridge loan are as follows:

  • Up to 70% / 80% loan to value ratio of property
  • Interest usually charged on a monthly basis
  • Terms usually up to 12 months (some lenders offer up to 24)
  • Adverse credit usually accepted (property/asset used to secure loan most important)
  • Loans with no early repayment charges available
  • Most exit routes are considered but will have to be able to prove one is there
  • Loans available throughout Australia
  • Semi-commercial property accepted

Difference Between a Commercial Bridge Loan & Commercial Mortgage

Bridging loans have a much shorter lifespan and are much quicker than a commercial mortgage to complete. Whilst a commercial mortgage might run over many decades, the terms on a commercial bridge loan are capped at 12-24 months.

To qualify for a bridging loan, a clear exit strategy is required and businesses must be able to demonstrate a way to repay the loan within a short timeframe. To qualify for a commercial mortgage, borrowers will have to be able to demonstrate the ability to repay a smaller amount over a longer period of time.

If your business is eligible for a commercial mortgage and you’re not in a hurry to secure financing, it might make financial sense to wait for a commercial mortgage. The interest rate is most likely going to be lower than a bridging loan.

Commercial Bridging Loan for Property Development

A commercial bridge loan can be used to renovate a commercial property, similarly to a construction loan. In fact, property developers looking to purchase property that needs significant renovation may find a bridging loan easier to access than a commercial mortgage. Mortgage lenders are likely to be less willing to provide the financing required if a property requires significant renovation. Bridging lenders are used to taking on more risk, so in turn for a higher interest rate, are more likely to provide the financing required.

Once the renovation is complete, the property developer can then switch to a commercial mortgage if they intend to lease out the property or sell it and repay the bridging loan.

Final Comment: Is a Bridging Loan Appropriate for my Business?

If you have commercial property with available equity and need to access funds fast on a short-term basis, then a commercial bridge loan could be for you. Commercial bridge loan lenders are used to taking on more risk than commercial mortgage lenders, so riskier borrowing profiles and properties requiring renovation may find commercial bridging finance easier to access. Due to the increased risk, commercial bridge loan rates are likely to be higher than that through a mortgage