If you run or invest in a care home, it’s not unusual to need quick access to funding, for example, to buy a new site, expand your facilities, or take care of important refurbishment work. Traditional finance options, such as commercial mortgages, can be slow and not very flexible. A bridging loan can offer your care home business a faster, more flexible alternative.
What is a bridging loan?
Bridging loans are often used when timing is critical, for example, to secure a property at auction if a property you own needs urgent renovations but you do not currently have the funds needed to do so.
Bridging loans are usually secured against property and are repaid once you have long‑term funding in place. This longer term funding is usually in the form of a commercial mortgage or through the sale of another asset. Most terms run from a few months up to around 24 – 36 months. Here at Goldhill Finance Limited we offer terms up to 12 months, which 24 months being an option with a payment plan in place.
Why care home owners might use a bridging loan
Care home businesses face unique opportunities and challenges:
1. Buy urgent opportunities
Properties suitable for care homes don’t come along often. If you spot a good deal, something too good to miss, especially at auction, a quick bridging loan can make the difference between securing the purchase or losing out on it.
2. Fund renovation & expansion
Many care homes in the UK require refurbishment to meet the strict regulatory standards or in order to accommodate extra residents. Bridging finance can help to quickly unlock capital in order to complete these works without the wait for slower long‑term lending.
3. Improve cash flow
We understand that sometimes there can be a gap between financing and longer-term funding, this is where a bridging loan can step in to cover any short-term costs, making sure your business keeps on moving forwards with no bumps in the road.
Cost considerations
When you take out a bridging loan it is important to take the costs into consideration, this is because they are typically more expensive than traditional mortgages. However bridging loans offer many more benefits, such as the ability to move fast.
- Interest rates: Often charged monthly rather than annually. A commercial bridging loan in the UK can range from around 0.6% to 1.5% per month.
- Fees: Arrangement, legal, valuation and broker fees are common and can add to your total cost.
- Short terms: Most bridging finance is designed for short periods (e.g., 1 – 12 months), and costs can add up if not repaid to the schedule pre-determined.
Factoring in all of costs into your plan is important, and one good way to do that is by using a bridging loan calculator to estimate monthly interest, fees and overall cost before you commit to taking one out.
How to decide what’s right for you
If you’re choosing finance for a care home, we recommend that you consider the following:
Your exit strategy
If you’re taking out a bridging loan, a well‑defined exit strategy is a must, you could face costly extensions or default risks if one is not in place.
Loan‑to‑value and security
Most lenders will offer up to around 75 – 80% LTV based on the property value, specialist deals can go higher if additional security is offered.
Compare options
One benefit of bridging loans is that there’s no one-size-fits-all option, although this may sound like a negative it means that each deal is structured around your specific situation.
The right bridging loan will fit your timescales, the security you can offer, and what you’re comfortable paying. It’s always worth comparing options and, in many cases, working with a broker to help you secure the best deal available.
Goldhill Finance Limited’s practical tips
- Always use a bridging loan calculator – They can help you to understand the full cost of your loan
- Plan your repayment – An important step in bridging finance, without a proper plan in place it’s unlikely you’ll be able to take a bridge loan out.
- Seek expert advice – Before you apply, give us a call and we’ll make sure to walk you through every step so you understand the process in full.