Just as it can be a serious ball-breaker when it comes to monies owed, it is also one of the most bullet-proof securities out there against a short-term loan.

VAT bridging is certainly a huge growth sector and is something all brokers need to have on their radars if they’re not familiar with it. Market conditions are perfect, after all: the number of commercial property transactions is growing by the day as ever more property developers seek to fill the supply gap.

But hold your horses a second. What exactly is VAT bridging? Well, VAT bridging enables property investors, developers and businesses generally to bridge the VAT when buying a commercial property. This means they can avoid tying up potentially significant sums of money — and stay commercially agile as a result.

For property developers, for example, the VAT payable on a £10m office-to-resi purchase will evaporate £2m for around three to four months. That’s a huge amount of dead money that can potentially drive future developments and generally smooth the running of a business by maintaining all-important cash flow.

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VAT bridging comes at a cost, of course, which can typically vary from 1.25% to 1.5% per month depending on the loan in question, but its purpose is to spare developers or businesses the opportunity cost of a lost transaction or other activity due to insufficient funds or restricted cash flow.   

You’d be genuinely surprised at how many developers – especially smaller or less experienced ones – are caught out by the 20% VAT payable on a commercial property transaction. This can potentially jeopardise the deal itself at the 11th hour, cause serious cash flow issues and reduce working capital for future deals.

VAT bridging is also being used by the growing number of businesses seeking to own their premises outright. In the still ultra-low interest rate environment, it is often cheaper to buy rather than to lease or rent. But the vast majority of business owners going down this route just aren’t aware they can bridge the VAT payable.

Oh, and it’s important to note that the niche lenders operating in this field will provide the bridging loan on an unsecured basis. There’s no need for a security from the borrower because the security is HM Revenue & Customs. In short, the UK government and economy — and that is about as secure as it gets.