Why Interest Rates Are Higher On Bridging Finance

You will be aware that if you wish to borrow money from the likes of a bank or building society, whether it is for the likes of a bridging loan or a commercial mortgage, then you will be charged interest. The interest rate is based upon a variety of factors such as what you require the funds for, how much you want to borrow and the perceived risk you present to the lender.

Interest rates on bridging loans are more likely to be greater than on a commercial mortgage
There are a number of reasons why the interest rate on a bridging loan tends to be higher than the likes of a commercial mortgage.

With regard to the perceived risk, this could be assessed based upon your experience in the line of business you are in, your borrowing track record and the security margin.

The amount you end up paying back in interest to the lender will depend upon a number of things. For instance, the interest rate that the money is lent to you at, the period of time you borrow the funds for and how much you wish to borrow.

So, why is the interest rate normally higher on a bridging loan than if you wished to borrow the funds by way of a commercial mortgage?

Well, a bridging loan is normally provided over a much shorter period of time than a commercial mortgage so the interest rate tends to be higher for the shorter term borrowing requirement. This makes the transaction more financially viable from the lender’s perspective.

Another factor is the level of risk with bridging finance. The lender will no doubt require deed security with this form of lending and look for a good security margin but in particular if it was an open-ended bridging transaction that became protracted then the lender could find its security margin quickly being eroded. Therefore, the lender would wish to charge an interest rate indicative of the potential risk.

With so many lenders providing bridging finance at varying rates of interest, you may wish to speak with ourselves as we have an extensive panel of lenders. We can look to introduce you to the one offering the most suitable lending package from your point of view.

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