VAT Bridging Loan For Business

With purchasing commercial property where you are required to pay VAT, standard finance arrangements may not cover the full cost of the finance required.

A VAT bridging loan in this situation can be an ideal solution.

Our service offers:

• Market leading VAT bridging finance from £50,000 to £25m
• Unsecured finance options
• Managed solutions
• Same day offer
• Fast completion
• We provide a friendly, professional service to help you get the money you need at the best available rates

 Call us on 0203 900 4322 to discuss your requirements.

Recent VAT bridging loan rates we've secured for clients:

Remember, VAT bridging loan interest rates vary depending on your business, lender, loan-to-value, exit strategy, the current market, and other factors.

Why Clifton Private Finance?

We are VAT bridging loan experts, and our advisers know the complex ins and outs of the market. 

In fact, in 2022, we won two awards for our bridging service.

And we also won Bridging Broker of the Year 2023.

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We can help you:

• Decide if a VAT bridging loan is right for you
• Understand what type of loan best suits your business
• Feel comfortable with how the process works and what the costs will be

And when we've established the best type of VAT loan for you, we will:

• Compare rates across the entire market
• Negotiate the best deal for your business
• Guide you through the application process
• Help you arrange your valuation(s)
• Liaise with your solicitor to sort the paperwork
• Chase through your application until the funds are in your bank account

Sam O'Neill

Head of Bridging

Let us do all the hard work of finding the right bridging lender for your circumstances. 

We secure bridging finance for applications of all types, and we negotiate competitive lending to meet your needs and timescale.

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What is a VAT Bridging Loan?

A VAT bridging loan is a type of short-term finance used by businesses to pay the VAT on a commercial property purchase.

When buying commercial property in the UK, VAT is charged at 20% of the purchase price. For many businesses, this VAT payment can create a cash flow issue if funds from traditional lenders or reserves are not available.

A bridging loan provides funding for this VAT payment, allowing the property transaction to be completed on time. It is then repaid once long-term finance is secured or the business has funds available. 

How Do VAT Bridging Loans Work?

VAT bridging loans work by providing a business with finance solely to cover the VAT payment due when buying a commercial property. This loan is then repaid once alternative funding becomes available.

The process typically works as follows:

• Business agrees to purchase commercial property
• VAT at 20% of purchase price is due upon completion
• Business does not have funds available to pay VAT amount
• Bridging lender provides loan just to cover VAT payment
• Property purchase can complete on agreed date
• Business repays bridging loan once long-term finance or funds are available

The bridging loan is secured against the property, with the lender taking a first or second charge. Interest is charged for the duration of the loan.

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VAT Bridging Loan Costs

While VAT bridging loans allow businesses to complete property transactions, they do come at a cost. Below are the typical costs associated with a VAT bridging loan:

Arrangement Fee - Usually a percentage of the loan amount, around 1-3%. Covers the lender's costs for providing the loan.

Valuation Fee - Covers a valuation of the property to confirm its value to the lender. Typically £1,500-£2,500.

Legal Fees - Legal costs for both the lender and borrower associated with arranging the loan. Expect 1-2% of the loan amount.

Interest Rate - The monthly or daily interest charged on the loan. VAT bridging loans typically have rates of 0.6-1.2% per month.

Exit Fee - An early repayment fee if the loan is repaid before the agreed term. Usually around 1-3% of the balance.

When combined, fees and interest for a VAT bridging loan can equate to 10-20% of the loan amount over a 6-12 month term. So for a £100,000 VAT loan over 6 months, total costs could reach £10,000-£20,000.

Always compare VAT bridging loans from multiple lenders to get the best rate for your specific needs. A broker can help access the whole market.

Tax Implications

Understanding the tax implications of taking a VAT bridging loan is crucial for businesses to manage their finances efficiently, and in understanding the financial impact of the loan.

• Tax Deductibles: Depending on the specific circumstances, businesses may be able to deduct the interest paid on the bridging loan from their taxable income. Consulting with a tax advisor can provide clarity on the potential tax deductibles associated with the loan.
• Business Account Implications: Businesses must carefully track loan-related transactions and expenses to ensure accurate accounting. Maintaining detailed records of all financial activities related to the loan can streamline the accounting process and facilitate accurate financial reporting. 

VAT Bridging Loan Requirements

To be approved for a VAT bridging loan, there are certain criteria lenders will assess:

• The Borrower - The underlying business must show sufficient financial strength and creditworthiness. For limited companies, minimum 2 years of accounts are required.
• The Property - A valuation will confirm the property provides adequate security for the VAT loan amount. Commercial properties like offices, retail units and warehouses are acceptable.
• Exit Strategy - The lender will ensure there is a viable plan to repay the VAT loan in a 6-12 month term, such as securing a mortgage or business loan.

Provided these criteria are met, VAT bridging loans can be agreed upon in as little as 7-14 days, allowing the commercial property purchase to be completed on time. 

Alternatives to VAT Bridging Loans

While VAT bridging loans provide fast access to funds, there are some alternatives businesses could consider:

Savings - Building up cash reserves can avoid the need for a bridging loan, although this is not always feasible.

Mortgages for Company Directors - Directors could loan the company funds, but this ties up their capital. There are instead mortgage options available for directors

Business Loan - A business loan from a bank could provide VAT funds, but they may take too long to approve.

Vendor Finance - The seller could finance the VAT payment until long-term finance is arranged, but they may not agree.

Mortgage - If time allows, a commercial mortgage with VAT advance could be an option, but bridging finance is faster.

While VAT bridging loans provide fast access to funds, businesses should also consider longer-term alternatives like commercial mortgages and bank loans for lower rates. However, the extended application process may not work within tight deadlines. Equity financing avoids debt repayment but requires sacrificing ownership shares. For urgent transactions, VAT bridging loans offer a crucial stopgap financing solution, despite higher costs.

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How to Get a VAT Bridging Loan

If you need fast access to funds to cover VAT on a commercial property purchase, here are the steps:

• Check eligibility - Confirm you meet the lender's requirements for a VAT bridging loan.
• Find a broker - Get expert help accessing the whole bridging loan market to find the best rate.
• Complete application - The broker will gather documents and financial details to submit to lenders.
• Get an Agreement in Principle - This confirms if a lender is willing to provide a VAT loan in principle.
• Choose lender and complete legal work - Finalise the loan and associated legal paperwork.
• Get funds on completion - The VAT loan will transfer on the day of property completion.
• Repay loan - When your exit strategy provides funds, repay the VAT loan as agreed.

With rates from just 0.6% per month, a VAT bridging loan allows you to spread this major purchase cost over 6-12 months. 

Example Case Study: VAT Bridging Loan for Office Purchase

To tie together how it all works, here’s a fictitious example of a VAT bridging loan. Concerning how it enabled a business to complete the purchase of a commercial office:

• Company wanted to purchase an office in London for £500,000 + VAT
• The VAT amount was £100,000 (20% of £500,000)
• The company did not have £100,000 available to pay this upfront
• By using a VAT bridging loan organised by Clifton Private Finance, they borrowed the £100,000 VAT amount
• This enabled completion to take place on the agreed deadline date
• The bridging loan was secured against the property
• After 3 months, the company  secured a commercial mortgage and repaid the £100,000 bridging loan plus fees & interest
• Without the bridging loan, the office purchase would not have been possible

For our example company, the VAT bridging loan was a crucial temporary financing solution that enabled their strategic business purchase.

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Access VAT Bridging Loans with Clifton Private Finance

As an established broker, Clifton Private Finance can access exclusive VAT bridging loans from lenders across the UK.

Our brokers have significant experience advising businesses on VAT bridging finance. We can assess your situation, find the most suitable lender and lowest rate, and support you through the process.

To discuss your VAT bridging loan requirements, please get in touch. Our initial consultations are obligation-free.

Call us on 0203 900 4322, email us at helpdesk@cliftonpf.co.uk, or book a consultation below.

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FAQs

What happens if the bridging loan cannot be repaid on time?

If the agreed repayment cannot be met, the lender may be willing to extend the term subject to additional fees. Otherwise, they may enforce the sale of the property to recover their loan.

Are VAT bridging loans available for any type of commercial property?

VAT loans can be used for purchases of offices, retail units, warehouses, factories and most commercial building types. More specialist properties may need further assessment.

Can I get a VAT bridging loan on a 2nd charge basis?

Yes, some lenders offer VAT bridging loans on both 1st and 2nd charge bases. While 1st charge loans are more common, certain specialist bridging lenders provide 2nd charge VAT loans. These loans come with higher rates, lower loan-to-value ratios, and stricter criteria to offset the increased risk for the lender.

The 1st charge lender might also require a Deed of Postponement. 2nd charge VAT bridging loans serve as an alternative option when 1st charge lending is not feasible. Seeking advice from an expert broker can help access both 1st and 2nd charge VAT finance.

What options do I have if my property value has declined since taking out the VAT bridging loan?

In this case, you might consider renegotiating the terms of the loan with the lender, extending the loan term, or exploring alternative financing options to cover the shortfall.