There is nothing wrong with organising bridging loans for residential property – loans to purchase, for raising capital, refinancing an expired facility or breaking chains. And as an industry, bridging lenders do it all the time.
Be it a regulated loan for an owner-occupier or non-regulated for a buy-to-let investment, properly handled it is a highly competitive market with loans provided by a host of short-term lenders. It helps to pay the bills but is it fun, does it fulfil ambitions, is it creative and is it satisfying?
Now, bridging finance for commercial property is a whole different world! First, it offers diversity as no two loans are the same, borrowers cover the wide spectrum of the property industry and business community and, of course, “size matters”. It is an opportunity to be creative, negotiate larger loans and to know that you are creating a new following: money making money.
Commercial properties vary from something relatively simple such as a retail shop or small factory to an industrial estate or a shopping centre. Larger residential investments, office buildings and development sites all fall under the commercial umbrella.
Commercial loans are often larger ranging from £250,000 to £10m or even £20m but lenders do have a sweet spot, which is usually between £500,000 and £5m. Is it easy to migrate from residential bridging to these larger, commercial loans? The answer is yes but there is a learning curve and intermediaries may need to expand their skills to add value to these transactions. However, lenders will co-operate with and assist intermediaries who can introduce valuable opportunities.
Criteria will vary from lender to lender but in the main there is a consensus on loan to value ratios at between 60% and 70% with pricing from 9% per annum and an arrangement fee of 1%. However, greater differences occur in underwriting policy and in service. Never try to push a square peg into a round hole, so if your requirement is commercial do not try to convince a residential bridging lender to go the extra mile. For lenders to provide efficient underwriting, they need to be comfortable with both the size of loan and the asset class.
Panel valuers are not suitable for commercial loans and, in fact, it is better to let the lender chose their own valuer as they will look for a firm with a substantial professional department supported by relevant agency experience and in today’s active market, part of the skill is the lender using its influence to obtain the valuation report without unreasonable delay.
Intermediaries will find that access to commercial bridging loans will generate significant commissions as well as show their introducers that they have a wider range of skills than their less well-versed peers. Becoming big in commercial will not happen overnight but with patience and tenacity, experience and skill will grow, providing a valuable opportunity to add a highly profitable intermediary activity.