When commercial property investors and business owners are exploring their finance options, the question of bridging versus mortgage comes up regularly. They are both secured against property and both involve borrowing a significant sum, but they serve entirely different purposes and are structured in very different ways. Understanding the distinction could save you significant cost.
What bridging finance is designed for
Bridging finance is short-term. Terms typically run from one month to 24 months. It is designed for situations where you need to move quickly or where a standard mortgage application is not practical given the timeframe or the condition of the property. Auction purchases, buying before a sale completes, funding a refurbishment to make a property mortgageable, and securing time-sensitive investment opportunities are all classic bridging scenarios.
Bridging is more expensive than a commercial mortgage. Interest rates are higher and there are arrangement fees on entry and sometimes exit. It should be used purposefully and always with a clear exit strategy in place.
What a commercial mortgage is designed for
A commercial mortgage is a long-term funding solution. Terms typically run from 5 to 25 years. It is appropriate for properties that are in a mortgageable condition and where the borrower has the documentation and trading history required for a full commercial underwrite. A commercial mortgage is cheaper than bridging finance and provides long-term stability.
If you are buying a commercial property that is tenanted, in good condition, and you are not under time pressure, a commercial mortgage is almost certainly the right product. If the property needs significant work or you need to complete in under four weeks, bridging is more likely to be the appropriate starting point.
When you might need both
It is quite common to use bridging finance initially, particularly for properties that need refurbishment or for auction purchases, and then refinance onto a commercial mortgage once the property is in good condition and tenanted. Development finance, which is a specialist form of bridging, is used for properties being built or significantly converted, with a long-term commercial or investment mortgage arranged once the development is complete.
We advise on both bridging finance and commercial mortgages and will always recommend the most appropriate solution for your specific situation, including the right sequencing if both products are needed.
If you are not sure which type of finance is right for your commercial property, the best starting point is a conversation. Get in touch and we will assess your situation and give you a clear recommendation.