A Guide to Business Bridging Loans
- Thomas Brogan
- Aug 22
- 5 min read
A bridging loan or commercial bridging loan is short-term funding businesses can apply for if they need cash quickly. It can be used to tide them over until they improve cashflow or complete a property sale. Repayment typically needs to be made within a year and it does have high interest rates.
What is a bridging loan?
Business owners or investors often take out a commercial bridging loan when buying new property or land. They may not have the cash to buy it outright, so a bridging loan helps them pay a deposit or secure the property, while they get the cash together or apply for a mortgage.
It’s also useful if you have an unexpected bill and you don’t have the capital to pay it off. You can get the loan within a few days or weeks without needing to apply for a longer-term product. That said, it does have higher interest rates compared to traditional loans because of the short term.
In some cases, you’ll need to show the lender that you have an exit strategy in place, such as selling an old property, or money coming in. This reassures them that you’ll be able to make the repayment on time.
How much funding can you apply for?
How much funding you get can vary from thousands to millions in some cases.
You’ll have to secure an asset against the loan such as property, which determines how much funding you can apply for. The higher the value of the asset (and if you own it outright), the more cash you can get because there is less risk to the lender.
The loan-to-value (LTV) ratio measures the amount of money you're asking for against the asset you're putting up. For example, if the LTV is 65% and your property is worth £500,000, you can borrow £325,000.
A higher LTV, let’s say 80%, is more uncommon but if it was the case, the interest would be higher. The LTV the lender offers also depends on whether you have a first- or second-charge loan (more on this below).
Formula: Loan amount / property value x 100
What are the interest rates?
Paying interest on a commercial bridging loan differs from a traditional one. Most of the time lenders ask you to pay it monthly or at the end of repayment because the loan term may only be a few months. The amount of interest you pay depends on your provider and whether you have a first- or second-charge loan.
“Interest rates on bridging loans can sometimes appear higher than traditional finance products, but it’s important to remember they are designed for short-term use. The flexibility and speed they provide often outweigh the cost, especially if it allows you to secure a property deal or cover urgent funding needs. Ultimately, the right product is about balancing cost against opportunity."
Thomas Brogan - Property Finance Broker
Types of bridging loans
Every borrower's requirements are different, so there are different types of loans to fit your needs and offer more flexibility.
Open bridge loan
An open bridge loan is the most flexible option as it doesn’t have a fixed repayment date. Payments can be made at any time, however, most lenders typically prefer it to be paid off within a year.
It’s ideal for auction purchases because you can access the funding quickly and pay it off once you have made your money back. One thing to be aware of is it typically has higher interest rates because of the flexibility it offers.
Closed bridge loan
A closed bridge loan is the stricter of the two as it has a deadline for repayment, which can be up to three months. It’s suitable if you have guaranteed money coming in such as your property sale will complete.
If you don’t pay the loan by the agreed date, the lender may charge you late fees or interest. Because these types of loans are more rigid, they generally have lower interest rates compared to open bridge loans.
First and second charge loans
To mitigate risk, the lender asks you to secure an asset against your loan such as property, cars or equipment. The asset you use will determine whether you have a first- or second-charge bridging loan.
First-charge loan:
If you own the asset completely (it’s not financed or mortgaged), the lender will give you a first-charge loan. For example, if you put up your car and it came to repossession, the bridging loan lender will be paid first from its sale before any other lenders.
Second-charge loans:
If you don’t own your asset outright (it may be on finance or mortgage), you’ll get a second-charge loan. So if your car has been repossessed and sold, the vehicle finance company will be paid before the bridging loan lender.
Why does this matter? The type of asset you secure against your loan will impact the amount of interest you pay and the cash you can get. For example, if you're putting up a property that you own, you’ll benefit from lower interest rates because the lender would be more likely to recover its funds. You may also secure a higher loan amount. Second-charge loans are more complex to apply for because you’ll have to get approval from the first lender i.e. mortgage/finance company.
How do companies use commercial bridging loans?
Research reveals almost a quarter of bridging loans in 2024 were used to break a property chain. When acquiring a bridging loan, you can purchase property such as a new office without relying on the sale of your existing one. Following this, 18% of bridging loans were acquired for investment purchases, auction purchases (14%) and refurbishments (11%).
Businesses typically use commercial bridging loans when buying new property or goods at auction because the cash is released quickly, so they can meet the payment deadline. The property can then be refurbished and resold for a higher price, so the buyer can repay the loan that way.
It is commonly used for refurbishments as some buyers will want to increase the value of a property before selling it.
How to apply for a bridging loan
Before applying for a commercial bridging loan, make sure it’s the right type of financial product for you. There are alternatives like asset finance, which can be used to buy machinery or equipment without putting up the cash upfront.
Start by finding a commercial bridging loan provider or broker like Approved. With over 125 partnered lenders, they can help you to secure a competitive bridging loan, so you can start your new project quickly.
Each lender has its own process but with Approved, you can apply online/by phone and then the experts will do an assessment of your business including finances, credit and future plans. The team will find you a competitive product, or an alternative solution that may be better suited in terms of tax and interest rates.
Check out Approved’s property finance services or apply for a bridging loan.
