A guide to VAT bridging loans

If you haven't applied for a VAT bridging loan before, there are a few useful things to know.

To help you begin your search, we’ve outlined some basic questions and answers.

To start off, how does a VAT bridging loan work?

A company may require temporary funds for the VAT element on a commercial property to enable a transaction to take place. For example, if they are buying a property for £500,000, and need to move quickly, they will require a VAT loan of up to £100,000. This is where a VAT bridging loan comes in.

At Vatbridge, a VAT bridging loan advance can be made available within seven to 10 working days in most cases; at a pinch we can sometimes do it in three. The difference between this and a normal loan is that the process carries on after the loan has been advanced.

Once the funds have been released, Vatbridge kick-starts the recovery process, whereby we start liaising with HM Revenue & Customs to recover the loan in the quickest possible time. The loans are usually recovered in between 45–65 days.

At what point in a commercial property purchase is it best to look at securing a VAT bridging loan?

It is always prudent to enquire as early as possible once you have the basic details of the transaction. An indicative offer can usually be made within 24 hours and then confirmed once you are ready to proceed.

What should you be checking for when applying for a VAT bridging loan?

Check the terms of the loan carefully and shop around for the best rates, terms and service. A VAT bridge is more than just a loan because of the VAT reclaim process, so it is particularly important to look into the terms and conditions. Normal rules apply here. Try to work with a company that has an established track record and good feedback, plus the financial resources to complete the transaction.

How can someone know which lenders are safe and reliable?

This can be hard to establish. It’s always best to have a look online at their reputation and review testimonials. Companies House is a good source of information and good old-fashioned word of mouth remains useful. At Vatbridge, we are also a patronage member of NACFB, which brings an extra layer of reassurance to our clientele.

How does someone find the best deal to tailor to their specific requirements?

The web is a good place to start or you can use the services of a specialist broker that understands the sector and can assist with the application process. They will have built up an extensive knowledge database and will save you having to talk to individual lenders, which can be a time-consuming process.

Why look at a specialist lender, such as a VAT bridging lender?

A specialist lender has the specific knowledge and skills to help you complete your purchase as quickly as possible. We speak to HMRC on a regular basis, which means that we can avoid any issues with the reclaim and reclaim the amount due in the shortest time period possible. Specialist lenders also tend to have financial strength and an experienced team, so they’re best placed to help you with a VAT bridging loan.

What are the possible drawbacks of a VAT bridging loan?

The VAT bridging process usually requires that an intercreditor deed is created with the senior bridging lender. The creation of this document is complex and can delay the process slightly due to the amount of communication involved between all parties. Luckily, Vatbridge’s solicitors are well versed in dealing with these matters and are usually able to settle them in a very timely manner.

What are the advantages?

The utilisation of a VAT bridging loan is advantageous as it works as an aid to cash flow within the purchasing business. It bridges a gap of between two and three months while the VAT amounts are being reclaimed, which normal lenders do not bridge.

This is a basic breakdown of the things to look for if you start searching for a VAT bridging loan. There are many things to consider, but hopefully this Q&A can guide you in the right direction.

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