How Easy Is It To Obtain A Bridging Loan?
As we referred to in a recent post, there has been a great deal of interest in bridging finance this year. It will be interesting to see if this situation continues as we shortly move into next year. However, just how simple is it to get agreement for a commercial bridging loan?
All forms of lending request are closely underwritten by banks and other lenders but it is felt by some that bridging loans, in particular open-ended ones, carry a slight increase in risk to the lender in comparison to some other forms of borrowing. Perhaps that is one reason why the interest rate charged on bridging finance tends to be somewhat higher than say a commercial mortgage.
An important factor from a lender’s point of view is that there is an exit path in place to ensure that the liability is cleared within the term of the borrowing. For instance, a bridging loan is sometimes provided so that a business can complete on the purchase of a commercial premises that is being sold at auction that will then be cleared following receipt of the monies from a commercial mortgage that is being arranged. In which case, evidence of financial support will need to be made available to the company being asked to provide bridging finance.
Another example is where a property requiring renovation is purchased which is then going to be sold once the improvements have been completed in a few months time. A professional valuation will no doubt be required of the property in its current state and after the works are completed.
The lender will also wish to ensure that there is adequate security in place with this usually being in the form of a first legal mortgage over the premises to be purchased. They will only lend a certain % of the purchase price/valuation. This % may vary between lenders but may be in the region of 65%.
The lender will also wish to make sure that the business can afford to cover the interest as and when it falls due whether that be on a monthly, quarterly, half-yearly or payable when the liability is liquidated. In this respect, you are likely to be asked to provide certain documentation such as up to 3 years audited accounts, cash flow forecast and 12 months business bank statements. It would also be preferable that both the business and the directors/owners have good credit ratings although there are some lenders that will consider applications for bridging finance from those with an adverse credit history.
In conclusion, for suitable applicants that meet the criteria of the lender, it should not be too onerous in obtaining a bridging loan. Commercial Mortgage Link can put you in touch with a specialist who can provide guidance in this respect and do all that they can to endeavor to source a competitive commercial bridging loan package on your behalf.