At a growing pace, bridging finance is becoming a force to be reckoned with in the UK’s specialist lending market. Providing rapid access to significant sums of cash for just about any purpose, bridging loans take convenience, flexibility, and accessibility to an entirely higher level.
But even at this stage, the true versatility of bridging finance isn’t what you’d call common knowledge. You may associate bridging loans with fast-paced property purchases, but how about a bridging loan for VAT?
For commercial property investors and developers, an affordable bridging loan to pay VAT can provide a welcome lifeline at a critical juncture.
What is a bridging loan for VAT?
As you’ve probably figured out by now, bridging loans for VAT are short-term loans that can be used to pay the VAT on a commercial property purchase. As things stand right now, the vast majority of commercial property purchases (where the property is less than three years old) require a 20% VAT payment. The VAT must be paid on top of the price of the property at the time of its purchase, which can significantly elevate the costs of the transaction.
The more expensive the property, the greater the VAT outlay for the buyer.
Of course, commercial property buyers go on to claim this VAT back from HMRC at a later date. The problem is that, depending on the specifics of the case and application volumes at the time, it can take as long as three months for refunds to be actioned. During which time, the investor could be left somewhat out of pocket.
Loans and specialist credit facilities in general are frequently used by investors to cover VAT costs, but none have proven quite as flexible or affordable as the bridging loan.
How a VAT-bridging loan works
As with all bridging loans, a VAT bridging loan is offered as a short-term credit facility for a specific purpose. In this instance, the borrower is able to apply for a minimum of, say, £50,000 with no upper limits, secured on their existing property or qualifying assets. Applications can be processed and funds delivered in as little as five working days, after which the full balance is repaid on an agreed date. Bridging loans can be arranged over terms of anything from a few days to 18 months, in accordance with the preferences of the borrower.
The lender makes the money available as quickly as possible, the borrower uses it to pay the VAT, and the property purchase goes ahead. When the VAT is refunded by HMRC, the funds are used to repay the loan in full, along with any additional borrowing costs incurred. The quicker the loan is repaid, the lower the overall borrowing costs and the simpler the transaction in general.
Affordable short-term VAT loans
Some of the UK’s leading bridging specialists offer short-term loans with rates of interest as low as 0.5% per month. All with minimal additional borrowing costs, arrangement fees, and general levies. Just as long as the balance is repaid in accordance with the loan agreement, bridging finance can be uniquely cost-effective.
Along with near-immediate access to the funds required, a key benefit of bridging finance is the elimination of credit checks. If the applicant is able to provide sufficient collateral to cover the loan, there’s no requirement to undergo a credit check or provide proof of income. No deposits, no delays, and no unnecessary complications, ideal for covering VAT costs when time is a factor.
Just be sure to consult with an independent broker before penning your application, which will help ensure you find the best deal from an extensive panel of specialist lenders.