Understanding Bridging Loan Rates

Bridging loans, often referred to as bridging finance, are a key form of commercial finance for businesses looking for a funding source to aid with the purchase of a property or to bridge short-term funding gaps.

Businesses in a wide range of sectors can benefit from bridging finance – the facility is often used by office-based companies to purchase new business premises, though it is also suitable for a range of other irregular purchases.

Understanding commercial bridging loan rates is the first step on the way to knowing whether bridging finance is the best available course of action for your business.

Your company’s creditworthiness may affect your interest rates, as could the bridging loan’s intended purpose – rates may depend on whether your bridging loan is intended for use on commercial or residential property.

Thanks to Anglo Scottish’s extensive portfolio of funders, however, we can usually offer a wider range of lending terms than traditional banking institutions, increasing your business’s chance of eligibility.

Types of bridging loan fee

As well as the associated interest rates for a commercial bridging loan, these types of loan are also subject to a number of other fees, which are crucial for calculating the true cost of borrowing. These include:

Lender arrangement fee

This is a fee charged by the lender for setting up the loan – this typically constitutes between 1% and 2% of your commercial bridging loan.

Broker fee

A small fee charged by Anglo Scottish for finding you the perfect funder and lending terms to meet your every need.

Valuation fee

This fee is applicable when securing a bridging loan for a commercial or residential property, covering the valuation of the property itself. This will vary depending on the size of the property in question.

Legal fee

Also applicable for property purchases, this fee covers the lender’s legal work to check the property’s title and complete the loan agreement.

Exit fee

A fee charged upon full repayment of the loan. Typically, this is around 1% of the total amount, though some lenders may charge a flat fee or a percentage of the loan balance.

Fixed rates make it easier for your business to forward plan, in terms of longer-term cash flow. They also mean that you’re protected in the event of rising interest rates. However, you should expect the initial interest rate of a fixed rate bridging loan to be higher than a variable alternative.

How is interest repaid on a bridging loan?

Interest repayment schedules can vary according to the funder in question. Interest can also be paid off early, if preferred. There are, however, a few common forms of interest repayment you are likely to encounter.

These can include:

Monthly payments

Under this form of agreement, interest is paid off via a series of monthly payments, much like a mortgage. Due to the fact you’re paying off the interest as you go, there’s no compounding of interest, which could make this the cheapest option for you.

Rolled-up interest

If your interest repayment plan takes a ‘rolled-up interest’ approach, your monthly interest is added to the overall loan balance and repaid in full at the end of the loan term. This means lower monthly payments, but often results in a higher overall cost due to the compounding of interest over the course of the loan.

Retained interest

Under a retained agreement, the payable interest amount is calculated at the beginning of the loan agreement and deducted from the total. This means you will receive less capital upfront, but will essentially have no interest to repay over the course of the loan itself.

How we can help

Unsure whether a bridging loan is right for you? Perhaps you’d like to know more about the available interest repayment schedules? Our expert team are always on hand to help.

Get in touch today to discuss your specific bridging loan needs, to find out more about Anglo Scottish’s offering or simply for an informal chat.