When financing commercial properties in the UK, commercial bridging loans and traditional commercial mortgages reign supreme. Although both will grant someone capital, they differ greatly in their intended uses and the borrowers they serve.
Knowing the differences between these two tools can make a world of difference when trying to grab a new business opportunity or to plan a longer-term investment.
What Medical Expenses Does a Commercial Bridging Loan Cover?
A commercial bridging loan is specifically tailored to meet short-term capital requirements and is designed to help “bridge the gap” in funding. These loans are used to quickly acquire a property, fund urgent refurbishments, or anything else in which time is of the essence.
Term:
3-18 months (some up to 24 months)
Speed:
Funds can be arranged in 3–10 working days
Repayment:
Usually via sale or refinancing
Interest:
Paid monthly, quarterly, or annually
Flexibility:
Fewer restrictions on property condition or borrower profile.
What Is a Traditional Commercial Mortgage?
The borrower is expected to make monthly payments that combine both the capital and interest. They are ideal for businesses or investors looking to acquire a property for business operations, rental income, or for appreciation in value.
Term:
3-18 months (with some options for up to 24 months)
Speed:
Funds can be arranged within 3–10 working days
Repayment:
Typically, some means of sale or refinancing
Interest:
Means of payment, monthly, quarterly, or yearly
Flexibility:
Less some means of limitation of property condition or borrower profile.
Key Differences to Consider
Perhaps the most obvious difference between these two types of finance is the speed of funding. Bridging loans can often be arranged in a matter of days. A commercial mortgage, on the other hand, may take several weeks, if not months, to finish.
Another major distinction is repayment structure. Bridging loans are generally repaid in full at the end of the term. In contrast, commercial mortgages are paid off in monthly instalments over the course of many years.
As far as flexibility is concerned, bridging loans are much more versatile. They can be applied to many uses, even on properties that would not qualify for a standard mortgage due to their condition or servicing planning status.
However, a commercial bridging loan may be less flexible, but it provides more cost-effective financing over the longer term, but only if you meet the lender’s specific requirements.
When to Use Each Option
Opt for a Commercial Bridging Loan If:
- You require immediate funding (for example, an auction property)
- Your purchase includes an un-mortgageable asset (for example, a house without a roof or plumbing)
- You are undertaking renovations or development before refinancing.
- You need to bridge a financial gap pending a sale or approval
Opt for a Traditional Mortgage If:
- You want to rent the property out long term, or live in it yourself (primary residence).
- You satisfy the income and credit criteria.
- The property is well-maintained and ready for immediate use.
- You wish to prolong and lessen the financial burden of monthly repayments.
Conclusion
Both products have their place in the UK’s finance framework. The easiest option relies on your timing, objectives, and capabilities to meet certain criteria. It may be worthwhile to discuss your needs with a professional broker or financial adviser.