How to get a 100% bridging loan

The bridging loan market is seeing strong growth, with a predicted 25% expansion estimated over the next half a decade, and a market size of just under £11 billion estimated by the end of 2024.

If you’re seeing this growth and wondering if a bridging loan can support 100% of the cost of your next asset investment, read on. We cover what a 100% bridging loan is, if it’s possible to get a 100% bridging loan, and how to apply.

What is a 100% bridging loan?

A bridging loan helps bridge gaps between funds. Say you want to purchase a large asset, like a house or company, but you don’t have the funds to complete the sale available today, and won’t have them ready for another year or so, you could choose to take out a bridging loan to pay for the asset.

You can then repay the loan once the funding has come through, usually with the help of a long-term loan, the sale of another asset, or with equity finance.

A 100% LTV bridging loan is a bridging loan that covers 100% of the value of the asset (aka, no deposit). There are fewer lenders willing to offer 100% bridging loans. Bridging loans usually use the asset you buy as a security for the loan. But if you get a 100% bridging loan, you'll likely need to give more assets to get the money.

Interest rates are also likely to be higher than both commercial mortgages and more traditional bridging loans. A more traditional bridging loan would be one that offers 75% of the value of the asset with a 25% deposit put forward by you, the buyer.

LTV Definition: LTV stands for loan to value ratio, which is the percentage of the property’s value that you plan to borrow. As an example, a 100% LTV indicates you intend to borrow the full value of the property from the lender, if the property is worth £5,000, you would be borrowing the full £5,000. Another example might be borrowing £7,000 to purchase a £10,000 property. In this case, you would leverage a £3,000 deposit for a 70% LTV.

Example: Let’s say you want to move your company headquarters to a new location. You’ve found a property you like the look of and it’s ready to buy now. You’ve also found a buyer for your old headquarters. You want to move into the new property now, but it will take several months for the sale of your old property to clear. You’d also prefer to move all your equipment over to the new building slowly as your team adjusts to the new location.

In this instance, you might choose to use a 100% bridging loan to fund the purchase of the new building right away. If you were eligible and the lender approved the loan, the lender would provide funds to cover the entire value of the property. You could then repay the funds, plus interest and fees, once the sale of your old HQ is completed.

What are the pros of a 100% bridging loan?

There are several reasons business owners look for 100% bridging loans, including the below benefits.

Less upfront capital required

A 100% bridging loan covers the full cost of the value of the property. This leaves more cash in the bank, potentially improving immediate cash flow and leaving a business with more working capital.

Speed

Bridging loans are much faster to apply for. The approval processes are faster, and the cash is available quicker than, say, something like a commercial mortgage. This can make them helpful tools in high-speed situations.

Chain break solution

If a sale is about to fall through, a bridging loan can help keep property purchases moving, potentially preventing chain breaks.

Some of the drawbacks of 100% LTV bridging loans

Every form of funding comes with risks and drawbacks – here are some of the drawbacks of 100% bridging loans.

High interest rates

100% bridging loans cost more than standard bridging loans. Be sure to factor this into your budget.

Additional collateral

It’s very likely you'll be asked to put forward additional assets as collateral – this could include your home or company premises. Failure to repay your loan could result in these being repossessed by the lender.

Credit score

A bridging loan, by its nature, requires a large repayment within a short timeframe. This makes them riskier. Missing this payment or defaulting on the loan would have a big impact on your company or personal credit score and could even lead to bankruptcy.

How to decide if you should get a 100% bridging loan

Only you can decide if a 100% LTV bridging loan (or any loan for that matter) is right for you. But here are some general guidelines on things you should consider before applying.

Affordability

Can you afford to repay the loan? A bridging loan is a unique form of funding and that can be incredibly useful in a few specific scenarios, but it can also make affordability less clear-cut.

Usually, when discerning affordability, you’d write up a budget and see how much you can afford to pay towards monthly instalments. But with a bridging loan, the money needs to be returned within a short period, usually not surpassing a year or two. This means you need to calculate affordability in two ways – one, check you can repay any potential monthly instalments. These may be interest payments.

Two, ensure you can repay the full amount by the deadline. This requires creating an exit plan. This is where you explain, both to yourself and the lender, in writing, how you intend to repay the full loan at the end of the term. An exit plan might include client contracts, a mortgage agreement in principle, or proposals.

Strategy

Interest rates for 100% LTV bridging loans can be higher than those for commercial mortgages, due to their short-term nature and the speed with which they can be made available. This makes it incredibly important that you have a strong strategy in place before making any long-term decisions. Ask yourself these questions:

• How much profit will you make from this investment?

• Have you factored in reasonable variables, for example, project delays?

• What will you do if your exit plan doesn’t go how you’re expecting it to? Do you have a backup plan?

• How will you repay the loan?

• Are the terms you’re being offered favourable?

• Have you double checked there are no better offers out there?

Property value

This consideration applies to all property purchases, self-funded or otherwise. Does the value of the property match up to the bridging loan? What about when you include the cost of the bridging loan itself? Is the property still worth what you’re paying in total?

Loan options

Is a bridging loan the most suitable loan for you in this specific instance? Let’s say, for example, you want to purchase a block of flats and turn them into offices. You predict the project will take you 6 months, and you already have a buyer lined up to take the office building off your hands at the end of the project. The amount they'll pay surpasses the total cost of your bridging loan by a substantial amount. And you’ve confirmed several other investors would pay a similar number. In this case, a bridging loan may be suitable for you.

On the other hand, let’s say you’re an online seller investing in your first brick-and-mortar storefront. You believe you'll sell enough product in the next two years to repay the bridging loan, but you aren’t selling a different property and you don’t intend on taking out a commercial mortgage. In this case, a bridging loan may not be suitable.

It’s understandable you want to pay off the loan quickly, and a bridging loan affords you that opportunity. But they are meant as a bridge. You might find you'll gain more favourable rates and easier terms if you spread the cost a little longer to, say, 3 years, with the use of a commercial mortgage.

How to apply for a 100% bridging loan

A bridging loan broker may be your fastest way to find out if you’re eligible for a 100% bridging loan, and if you aren’t, what your other options may be. To find out if you’re eligible, get a quote here.

Whether you use a broker or go it alone, these are the general steps you might take to apply for a 100% bridging loan:

• Decide on a budget – how much do you need in funding and what are you hoping to pay in return?

• Next, you’ll want to find a lender. You can do this with a broker or on your own, but do remember that lenders offering 100% bridging loans are hard to come by

• Ask the lender or broker about your eligibility. Your contact may be able to conduct a soft search. This could save your credit score from having a hard search run against it just to determine the likelihood of approval

• Now you’ll want to apply. You may need to submit a wide range of documents, including documentation about any additional assets you’re using as collateral, as well as documents regarding the asset you want funding for

• Wait and find out if you’re approved

• If you’re rejected, you can use a broker or return to your search to find another type of funding

• If you’re approved, the lender will provide the funds to help you complete the sale. The terms will state a date by which you need to return the funds. Keep this date in mind and ensure you return the funds in full by the end of the loan term

How can I improve my chances of getting my application approved?

A larger deposit is usually a good way to improve your chances of having an application approved. But since you’re looking for a 100% bridging loan, here are some other popular methods of strengthening your application that don’t feature a deposit:

• Create a solid exit plan. Back it up with evidence and documentation

• Choose a great investment. The asset will be the lender’s collateral. They want to know it’s worth the funding

• Submit easy-to-sell, high-quality collateral to be used as additional security for the loan

• Improve your credit score before applying.

  Tide’s Credit Score Insights

  can help you access, understand and improve your business credit score.

• Ensure all your documents are ready and well-presented. That means tax returns, revenue projections, and of course, your all-important exit plan

Find a 100% bridging loan with Funding Options by Tide

Whether you’ve decided to seek funding for the entire investment through a 100% bridging loan, or if you’d prefer to apply for a commercial mortgage, auction finance, or property development finance, we may be able to help.

We’re Funding Options by Tide – we help connect eligible business borrowers to our network of over 120 of the UK’s most reputable lenders. We’ve facilitated over £950 million in funding to more than 21,000 happy customers. To find out if you’re eligible for up to £20 million in funding, simply submit your details below and we’ll be in touch shortly.

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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.