Understanding UK Bridging FinanceWritten by Commercial Lifeline
Bridging finance, also referred to as "bridge loans" and "bridging loans", have nothing at all to do with re-constructing London Bridge. Bridging finance is typically a short-term loan that a business uses to supply cash for a real estate transaction until permanent financing can be arranged. The word "bridge" conveys fact that loan is designed to get you over a temporary obstacle. A typical use for a bridge loan is to cover situations such as when a company needs to close on a new office building before having sold their old one. They would use proceeds of bridge loan to continue making payments on old building until it is sold. Bridging finance almost always requires that you pledge some sort of collateral as security against loan. You could offer up commercial or private real estate that you own,or are in process of buying, machinery and office equipment or even existing inventory. If you have outstanding business and personal credit, as well as an outstanding relationship with your lender, you might be able to secure your bridge loans on just a signature. Because need for bridging finance sometimes arises suddenly and without warning, it is a good idea to establish a relationship with a lender before actual need arises. When you do this you can arrange to be pre-approved for a specified loan limit. Later, when need suddenly arises, you won't have to wade through all of red tape. The typical term for a bridge loan runs from a fortnight to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to match your needs.
| | Understanding a UK Commercial MortgageWritten by Commercial Lifeline
In many ways a commercial mortgage is just like a residential mortgage in that you pledge real property as collateral against a loan to either buy or refinance that property. You can also receive a commercial re-mortgage and use it as a line of credit for any business purpose. When you use a commercial mortgage to buy property, or to raise funds for any other business purpose, lender retains an interest in that property until loan has been paid in full. Unlike other types of business loans, which usually have a relatively short repayment period, you can take out a loan for as long as 30 years if you like.The lender receives repayment of commercial mortgage principal and interest over lifetime of loan. If you default on loan and go into arrears then lender can foreclose and take possession of property which was used as collateral. Generally speaking, interest on a commercial mortgage is tax deductible and net proceeds of loan are not considered to be taxable income. However, you should always check with your accountant to be sure because tax consequences can be severe should it be determined that your usage of funds was not for a qualified business purpose. Should you be seeking a commercial mortgage for purposes of operating your business, rather than actually buying property, then lender will either want to re-finance your current mortgage, and include enough money to provide amount that you are seeking, or they may arrange an equity line where they lend you difference between current value of your commercial property and amount that you owe on current mortgage. There are generally two types of interest schemes available when you are applying for a commercial mortgage. The fixed rate commercial mortgage establishes an interest rate that is in place either for life of loan or for a fixed period of time. If it is for a fixed period of time then it will normally convert over to second type of rate, which is called a variable interest rate, after fixed time period expires. In some cases your lender may add a Early Redemption Charge (ERC) clause to your commercial mortgage contract which states that if you pay off note prior to end of fixed rate period then lender is entitled to a one-time lump fee to offset their loss of expected income. In some cases this ERC may extend to longer periods possibly up to entire term of loan. Be very sure to read your loan contract carefully to make sure that you understand implications of ERC if it is present.
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