When purchasing or refinancing commercial property, timing can make or break a deal. Traditional lenders are often slow, which is why many investors and businesses turn to bridging loans. These short-term finance solutions can unlock opportunities quickly, but one question always comes up: what about the interest rates? In this guide, we’ll break down bridging loan interest in plain language. You’ll learn how rates are set, why they vary, and how they influence the total cost of short-term funding.

We’ll explore examples drawn from commercial property financing, highlight what clients often overlook, and end with practical advice to make informed borrowing decisions.

What Are Bridging Loan Interest Rates?

Bridging loans are designed as a temporary financing bridge between the purchase of a property and a longer-term funding option, such as a mortgage or property sale. Unlike traditional mortgages, which have interest calculated annually, bridging loan interest is typically charged on a monthly basis. For commercial property transactions, typical bridging loan interest rates start at 1.5% per month.

At first glance, this might seem low. However, because interest accumulates monthly, the annualized cost can appear higher than long-term funding. For example, if you borrowed £500,000 against a commercial property for 6 months at 1.5% per month, your interest charges alone would amount to approximately £45,000 (ignoring fees). That is why clients should carefully assess how bridging finance fits within their broader investment or business strategy.

Factors That Influence Bridging Loan Interest

No two clients pay the same bridging loan interest rate. Lenders consider multiple variables, and understanding them can help you present a stronger case. Here are the most important factors:

• Loan-to-Value (LTV) Ratio: The higher the loan relative to the property’s value, the more risk for the lender. While loans are available up to 75% LTV, expect rates to be more favourable when borrowing at a lower LTV.
• Loan Size: Bridging loans typically range between £100,000 and £1,000,000 for commercial property. Larger, lower-risk loans often receive slightly better pricing, as long as the security is strong.
• Borrower Profile: Lenders assess the applicant’s track record. Both UK residents, non-UK residents, and companies can apply, but those with strong financial standings or prior successful bridging exits often secure more competitive terms.
• Property Type & Tenure: Freehold and leasehold commercial properties are accepted. However, niche or challenging commercial assets (for example, nightclubs, petrol stations, or properties with very short leases) may attract higher interest rates.
• Exit Strategy: Perhaps the most critical factor: lenders want to ensure there’s a realistic way for you to repay. Selling a property or refinancing with a commercial mortgage are common exit strategies. The more convincing your exit, the better your rate.

By understanding these elements, clients can recognise what’s in their control and what is not.

How Interest is Calculated on Bridging Loans

Interest charges on bridging loans can be structured in different ways. This is often misunderstood and can change the affordability picture significantly. Let’s look at the three main methods:

• Monthly Serviced Interest: The borrower pays the interest each month. This improves affordability in the short term because it prevents interest from compounding. For example, on a £500,000 facility at 1.5% monthly rate, you’d pay £7,500 every month.
• Rolled-Up Interest: The interest is added to the outstanding balance and settled at the end of the loan term, alongside the principal. This option is popular with businesses that want to retain maximum cash flow during the loan term. However, it increases the final repayment amount.
• Part & Part: Some lenders allow borrowers to service part of the monthly interest (say 0.5% monthly) while rolling up the remainder. This balances affordability with keeping final repayments manageable.

Choosing the right interest payment structure depends on your cash flow needs and the timeline of your exit strategy.

Example: Bridging Loan Interest in Practice

Imagine a company acquiring a commercial property to repurpose it into offices. They need fast financing because a competitor is also interested in the same building. The purchase price is £800,000, and they require a loan of £600,000, which is 75% LTV.

• Loan: £600,000
• Interest Rate: 1.5% per month
• Term: 9 months
• Fees: Arrangement fee at 1% (£6,000)

If rolled-up interest is chosen, the monthly charge (£9,000) is added to the balance each month. By the end of 9 months, the interest equals £81,000, which is then repaid along with the principal and fees. For the company, this is acceptable because they plan to refinance into a longer-term commercial mortgage, and the uplifted property value will cover these costs. Practical insight: this calculation shows why bridging loans are powerful tools for short-term opportunities, but not intended for holding property long-term.

Additional Costs Beyond Interest

Clients often make the mistake of looking only at bridging loan interest rates while ignoring other costs involved. To make a fully informed decision, account for:

• Arrangement Fees – Typically start from 1% of the loan amount.
• Valuation Fees – Charged for a professional survey of the property.
• Legal Fees – Covering both the lender's and the borrower’s representation.
• Exit Fees – Some lenders charge an additional percentage fee upon repayment. Not all, but it’s worth asking upfront.

When these costs are added to the monthly bridging loan interest, the overall expense can alter the real value of the funding.

Avoiding Common Pitfalls with Bridging Loan Interest

Over the years, we’ve seen clients make repeated mistakes when it comes to navigating bridging finance. Here are some insights that can save considerable stress and expense:

• Underestimating the Timeframe: Many borrowers assume their property sale or refinance will be completed in 3 months, but bridging loans often extend to 6 or 9 months in reality. Always allow for delays.
• Focusing Only on the Headline Rate: A loan at 1.5% monthly with high fees may be more expensive than a 1.7% loan with no exit fee. Consider the total cost of borrowing, not just the interest rate.
• Weak Exit Strategies: Even if you can afford the interest, lenders won’t approve your application if your repayment route isn’t convincing. A clear, realistic exit strategy is as important as the property itself.
• Poor Cash Flow Planning: With serviced interest, missing monthly payments can create financial stress. With rolled-up interest, big balloon payments at the end can be overwhelming if not anticipated properly.

Who Can Apply for Commercial Bridging Loans?

Bridging loans for commercial property are flexible in terms of eligibility. Applicants include:

• UK residents looking to purchase, refurbish, or refinance commercial assets.
• Overseas investors (non-UK residents) investing in the UK property market.
• Limited companies and partnerships acquire property for business purposes.

With loans ranging from £100,000 to £1,000,000, commercial bridging loans are available to a wide range of borrowers, including small businesses and seasoned investors. Flexibility around freehold and leasehold tenure also makes this product attractive in different scenarios.

Why Commercial Clients Use Bridging Loans

Commercial bridging loans remain popular because businesses and investors rarely have the luxury of time. Common uses include:

• Securing property auctions where funds are required within 28 days.
• Refinancing existing loans to release equity quickly.
• Funding refurbishments that enable higher long-term rental or resale values.
• Acquiring properties before longer-term financing is finalised.

In every case, the common denominator is speed. Bridging allows clients to move forward without waiting months for conventional funding approval.

Final Thoughts: Making Sense of Bridging Loan Interest

Understanding bridging loan interest rates is crucial before entering into any agreement. On the surface, rates starting from 1.5% per month may feel attractive, but when compounded over several months along with arrangement fees, the cost becomes more substantial.

That said, for clients seeking fast-moving commercial opportunities, bridging finance is often the difference between securing the property and missing it altogether. The key is balancing speed with cost-effectiveness, while always keeping the repayment exit in sight.

If you’re considering bridging finance for a commercial property, now is the right time to speak with a professional bridging finance provider. A single conversation can help you compare lenders, assess the true cost of borrowing, and structure a deal that protects your business ambitions.