What is a commercial bridging loan?

Commercial bridging loans can provide the speed and flexibility that traditional commercial mortgages can’t match. They’re popular too, with UK bridging loan completions reaching £2.8 billion in Q1 2025 and applications growing by 55% compared to the previous quarter.

But commercial bridging loans aren’t right for every situation. And with interest rates hovering around 0.40-0.75% (plus base rate) per month, they can be expensive if you don’t have a clear exit strategy.

In this article, we’ll explain what a commercial bridging loan is, how it works, when it might be worth considering, the costs and risks involved, and what the application process typically looks like.

Key points:

• Commercial bridging loans provide short-term financing (typically 3-18 months) specifically for commercial property transactions (e.g. buying, refurbishing, or refinancing offices, shops, warehouses, and other business premises)

• They’re usually much faster to arrange than commercial mortgages, but come with higher interest rates and fees

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

What is a commercial bridging loan?

A commercial bridging loan is a specialist type of short-term property finance designed specifically for commercial property transactions.

Unlike a standard business bridging loan, which can support a wide range of short-term business funding needs, a commercial bridging loan focuses solely on helping you buy, refinance, or refurbish non-residential property.

For example, you could use a commercial bridging loan to purchase a new office building before selling your existing premises, or to secure a retail unit at auction while you arrange longer-term commercial mortgage financing.

The key difference is in the purpose and security:

• Commercial bridging loans are typically secured against commercial or semi-commercial properties, such as offices, shops, warehouses, industrial units, or mixed-use buildings containing both residential and commercial space

• They’re specifically designed for businesses, property investors, and developers involved in short-term commercial real estate deals

Commercial bridging loans can complete in as little as 3-4 weeks, compared to the several months usually needed by traditional commercial mortgages. This speed makes them an attractive option for businesses needing quick access to finance.

It’s important to note that most commercial bridging loans are unregulated by the Financial Conduct Authority (FCA). This gives lenders greater flexibility in their lending criteria but also means borrowers receive less regulatory protection compared to residential property finance.

How does a commercial bridging loan work?

A commercial bridging loan works by using a commercial or semi-commercial property as security for short-term finance, which can then be used for various business purposes (e.g. buying, refinancing, or refurbishing non-residential property).

The lender will typically advance between 50-75% of your property’s value, with the average loan-to-value ratio currently sitting at 53%. So if you’re buying a £500,000 office building, you might be able to borrow up to £375,000 (75% LTV), meaning you’d need to provide a £125,000 deposit.

You can secure the loan against either the commercial property you’re buying or an existing commercial property you already own.

There are two main types of commercial bridging loans:

• Open bridging loans don’t have a fixed repayment date, but you’ll generally need to repay within 12-18 months.

• Closed bridging loans do have a specific end date, and are often tied to an event like completing the sale of another commercial property.

You’ll also encounter first charge and second charge loans:

• A first charge loan means the lender has first priority if you default – there’s no other finance (e.g. a mortgage) secured against the commercial property.

• A second charge loan sits behind existing finance, like a commercial mortgage, which makes it riskier for the lender and typically more expensive for you.

An important part of any commercial bridging loan is your exit strategy. This is your plan for repaying the loan, and lenders will consider it carefully. Some borrowers exit by selling the property, some refinance onto a buy-to-let mortgage, and some move to a commercial mortgage.

Interest is usually calculated monthly rather than annually, and you can typically choose how to pay it. For example, you could make monthly interest payments, “roll up” the interest and pay it all at the end, or have the lender retain some of the loan to cover your interest payments.

When should you consider a commercial bridging loan?

Commercial bridging loans can work well for property transactions where speed is more important than cost, and when you have a clear plan for repaying the money.

Here are the most common commercial property situations where they can make sense:

• Commercial property auctions: When you need to complete a property purchase within a short period (e.g. 28 days) and can’t wait for traditional mortgage approval

• Broken commercial property chains: If you’re buying new business premises but the sale of your current commercial property has been delayed

• Commercial property refurbishment: When you want to buy and renovate offices, shops, or warehouses before refinancing onto a longer-term mortgage

• Property investment opportunities: To secure commercial properties for rental income or capital appreciation when traditional mortgages would be too slow

• Property development projects: To secure land or buildings for development before arranging development finance

• Commercial property portfolio expansion: When experienced property investors want to move quickly on opportunities

While commercial bridging loans are usually used for property-related purposes, they can also sometimes be used to release equity from commercial property for other short-term business needs – provided there’s property as security.

Commercial bridging loans aren’t suitable for general business funding needs like buying equipment, boosting working capital, or acquiring other businesses unless they’re backed by property as collateral. For those needs, you’d want to consider general business bridging loans or other business finance options.

How much do commercial bridging loans cost?

Commercial bridging loans are typically more expensive than traditional commercial mortgages, but the speed and flexibility may justify the extra cost. Interest rates currently average between 0.75% and 2% per month, which works out to roughly 9% to 24% per year. The exact interest rate you could be offered will depend on the loan-to-value (LTV) ratio and the lender’s assessment of the commercial property and your experience as a property investor or business owner.

You could borrow anywhere from £100,000 to several million pounds for commercial property purchases, but the average loan size is £540,000. Your exact loan amount will depend on the commercial property value and your deposit – most lenders will advance 50-75% of the property’s value.

You’ll also likely have to pay an arrangement fee to secure the loan, which typically ranges from 1-3% of the loan amount. For example, on a £500,000 commercial property loan, you might pay £5,000-£15,000 to set it up.

Other costs can include commercial property valuation fees, legal costs, and sometimes broker fees if you use an intermediary.

As an example, let’s say you’re borrowing £300,000 to buy a retail unit at 0.75% monthly interest over 12 months. Your monthly interest would be £2,250, totalling £27,000 over the year. Add a 2% arrangement fee (£6,000) plus legal and valuation costs (around £3,000), and your total cost would be roughly £36,000.

It’s important to factor in all these costs when considering whether a commercial bridging loan makes financial sense for your business. If you can complete your exit strategy quickly (e.g. within six months) the total cost might be worthwhile for securing the right commercial property. But if you’re stuck with the loan for the full term, you might find that costs mount up quickly.

How fast is the application process?

Speed is typically considered the main advantage of commercial bridging loans. The average completion for a bridging loan is 2-4 weeks. Some lenders can even complete commercial property purchases in 48-72 hours in exceptional cases, though this is rare and usually requires all documentation and valuations to be ready in advance.

Here’s how the commercial bridging loan process typically works:

1. Initial application: Complete an online form with your business and commercial property details, and your intended loan amount and exit strategy

2. Commercial property assessment: The lender will run credit checks and arrange a commercial property valuation, a few days to a week

3. Loan offer: If approved, you’ll receive a formal offer explaining the lender’s interest rates, fees, and terms within a week

4. Legal work: Commercial property solicitors handle the legal documentation and property searches, which typically takes 1-2 weeks

5. Release of funds: Once the solicitors are satisfied, funds can be transferred within 24-48 hours

The process can be a lot faster than traditional commercial mortgages, which often take 6–12 weeks for similar commercial property transactions. But this will depend on you having all the paperwork ready and choosing an efficient legal team experienced in commercial property.

If you're buying commercial property at auction, make sure your lender can definitely complete within the required timeframe – not all can meet tight deadlines.

What are the risks involved?

Commercial bridging loans can be incredibly valuable, but they also come with a range of risks that you need to understand before proceeding:

• High interest costs: At rates often between 0.75% and 2% per month in 2025, costs can quickly spiral if your commercial property exit strategy is delayed

• Commercial property market volatility: Property values can fall, potentially leaving you in negative equity if you need to sell the commercial property quickly

• Exit strategy failure: If you can’t sell the commercial property or arrange refinancing, you might need to find alternative ways to repay to avoid defaulting on the loan

• Personal guarantees: Most lenders will need directors to provide personal guarantees, putting your personal assets at risk

• Penalty interest: Many lenders will charge higher default rates if you miss payments or breach loan terms

• Short-term pressure: The typical six to 18 month terms don’t give you much time if commercial property sales fall through

You could mitigate some of these risks with careful planning. For example, having a realistic exit strategy with backup options, ensuring you can service the monthly payments from rental income or business cash flow, and not borrowing the maximum amount available which could stretch your finances could help.

How do commercial bridging loans compare to other finance options?

Commercial bridging loans are specifically designed for property transactions, so they compete mainly with other forms of commercial property finance rather than general business funding:

• Commercial mortgages: Often cheaper but much slower and more restrictive on commercial property condition and borrower criteria

• Property development finance: Similar speeds but designed for construction projects rather than purchasing existing commercial properties

• 100% commercial bridging loans: Rare in practice, these can theoretically cover the full commercial property value, but will always require substantial additional security (such as other properties) and come with higher interest rates

• Commercial property auction finance: Specialist products for auction purchases with even faster completion times but higher costs

• Refurbishment bridging loans: Designed specifically for commercial property renovation projects with staged funding releases

If you’re looking for non-property related business funding, you could consider general business bridging loans or unsecured business finance options that aren’t secured against commercial property.

The right choice will depend on your specific commercial property situation. If you need to move quickly on a property opportunity and have a clear exit strategy, a commercial bridging loan could be ideal. But if speed isn’t the crucial factor, a traditional commercial mortgage could be more cost-effective.

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Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

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FAQs

Can startups get commercial bridging loans for property?

Possibly, although it can be more challenging. Most lenders prefer businesses with at least 12-24 months of trading history, but some will consider newer businesses for commercial property purchases if you have a strong personal credit history, can provide a large deposit, or have a clear exit strategy. You’ll likely be charged higher interest rates and have to meet stricter personal guarantee requirements.

Do I need a personal guarantee for commercial property bridging loans?

Probably. Most commercial bridging loans require directors to provide personal guarantees, making you personally liable for the debt if your business can’t repay. This puts your personal assets, including your home, at risk even though the loan is secured against commercial property.

What types of commercial property can I use as security?

You can typically use offices, shops, warehouses, industrial units, mixed-use properties, and development land as security. The property must have sufficient value to cover the loan amount, and lenders will usually require a professional commercial property valuation.

Can I pay off my commercial bridging loan early without penalties?

Most commercial bridging lenders don’t charge early repayment penalties, which provides some flexibility if you sell or refinance earlier than expected. But some lenders may impose early settlement or minimum interest charges, so always check the specific terms of your loan agreement.

What’s the difference between commercial bridging loans and business bridging loans?

Commercial bridging loans are specifically for commercial property transactions and are secured against commercial property. Business bridging loans can be used for various business needs including equipment, working capital, or acquisitions, and may not involve property at all.

How do interest payments work on commercial property bridging loans?

You can usually choose from three options:

• Monthly interest payments from your cash flow

• Rolled-up interest that’s added to the loan balance and paid when you sell or refinance the property

• Retained interest where the lender holds back part of the loan to cover interest costs

What if I can’t sell my commercial property as planned?

Contact your lender immediately to discuss your options. Some lenders will offer extensions, though usually at higher interest rates. You might need to find alternative exit strategies, such as refinancing onto a commercial mortgage or finding other buyers. If you don’t address the situation quickly, it could lead to default and potential loss of the commercial property.

Are commercial bridging loans regulated?

Commercial bridging loans aren’t typically regulated by the Financial Conduct Authority, unlike some residential bridging loans. This means you have less regulatory protection, so it’s important to work with reputable lenders and get proper legal advice before proceeding with any commercial property transaction.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.