When a business buys commercial property, they may be charged VAT which they will then need to reclaim back on their VAT return. This can be many thousands of pounds and may take between 28 to 150 days to be refunded. During the interim period, a bridging loan can be used to pay it.
Most commercial property is opted into the VAT system. Purchasers must pay 20% VAT tax on top of the purchase price. The VAT is then included on the next return, but that can be several months after paying the VAT. Many businesses find this a financial strain and the payment can negatively affect their cash flow.
A bridging loan can be used to pay the VAT. These loans are low risk, as the lender knows that the loan will be repaid as soon as the VAT refund is processed. The loan funds can be available in as little as seven days.
The lender can act as a VAT agent ensuring that the rebate is processed as quickly as possible. The refund can be directly deposited in the lender’s bank account. As the loans are low risk, they can cover 100% of the VAT amount, in contrast to property loans of 70% to 80% of the property value.
A bridging finance broker will be able to arrange the loan at reasonable interest rates. Bridging loans can make paying the VAT on commercial property purchases less painful.