2 min read
When a bridging loan is the right instrument
A bridging loan is a short-term, interest-rolled instrument designed to fund a property acquisition — or any time-critical transaction — before a longer-term exit is in place. Common exits include a commercial mortgage refinance once the property is tenanted, a sale of the asset, or the completion of a planning consent that unlocks superior long-term finance.
Bridging lenders can move within days on straightforward transactions. For auction purchases, distressed acquisitions, or properties in an unmortgageable state, this speed is essential and commands a price premium.
Commercial mortgage suitability
A commercial mortgage is appropriate when your company is buying a property it intends to occupy, rent, or hold for the medium to long term, and when the asset is in a condition and tenancy profile that a lender will accept. Lenders require a minimum loan-to-value — typically 65–75% — and serviceability from business income or rental yield.
The underwriting timeline is longer: valuation, legal due diligence, and credit assessment typically take four to eight weeks. This timeline is incompatible with many auction or competitive-offer scenarios.
Cost comparison over a short holding period
Bridging interest is typically charged monthly and rolled into the loan rather than paid monthly, meaning the effective cost compounds over the term. For a holding period beyond twelve months, this compounding effect can make a bridge materially more expensive than a commercial mortgage even accounting for the faster execution. The crossover point depends on the specific rates, arrangement fees, and exit costs involved. These comparisons are illustrative and not indicative of any offer.
The critical importance of exit planning
Lenders will not advance a bridging loan without a credible, documented exit strategy. Before applying, directors should confirm: the refinance lender's in-principle position, the likely timeline for planning permission or tenancy, or a realistic sale timeline with comparable evidence. A bridge without a clear exit is a significant financial risk.
Frequently asked questions
Can a limited company use a bridging loan for a property it plans to occupy as its trading premises?
Yes, and owner-occupied commercial bridging is common where the company needs to acquire quickly and refinance once the fit-out is complete. Confirm with the bridging lender that their facility allows owner-occupation, as some bridge lenders focus exclusively on investment properties.
What loan-to-value do bridging lenders typically offer?
Most bridging lenders will advance up to 65–75% of the open market value, though some will go higher on strong assets with clean exits. Gross loan (including rolled interest) must remain within the LTV at the point of exit. Illustrative only — not an offer.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.