Process and legal
Drawdown
The transfer of loan funds from the lender to the borrower (or the borrower's solicitor) at completion. On staged loans, each tranche release after the first is also a drawdown.
Drawdown is the moment a UK commercial mortgage lender transfers funds. On a single-drawdown deal (which is the norm for owner-occupier and investment commercial mortgages) drawdown happens once, on the day of completion. On staged-drawdown deals (bridging with refurbishment, light-development commercial bridging) each tranche release after the first is also a drawdown.
What happens at first drawdown
The mechanics on a standard UK commercial mortgage completion:
- Lender’s solicitor confirms all conditions precedent are satisfied. CP examples: first charge registration ready to file, valuation in date, lease assignments executed, debenture and PG signed.
- Borrower’s solicitor confirms the borrower side is ready and gives the lender’s solicitor a completion undertaking.
- Lender transfers loan proceeds to the lender’s solicitor, who in turn transfers to the borrower’s solicitor.
- Borrower’s solicitor uses the loan funds (plus the borrower’s equity contribution) to pay the seller’s solicitor.
- Charge documents are filed at HM Land Registry and Companies House.
The borrower never actually sees the loan funds in their own bank account on a purchase. Funds flow solicitor-to-solicitor.
Staged drawdowns
On refurbishment or light-development commercial bridging, the loan is split into:
- Day-one tranche: funds the property purchase. Released at completion.
- Refurbishment tranches: released in stages as the works progress, against a monitoring surveyor’s certificate that confirms work-in-place value.
The borrower funds the works upfront and is reimbursed in arrears (most common), or the lender releases funds in advance against an approved spend schedule (rarer, requires stronger borrower covenant).
Interest from drawdown
Interest starts accruing on each tranche from the day it is drawn. On staged loans this means the effective interest cost on the day-one tranche over 12 months can be materially higher in pound terms than the headline rate suggests, because the later tranches do not carry the full year of interest.
A worked broker example
A 1 million staged bridge over 12 months at 0.90% per month. Day-one tranche 750,000, drawn at month 0. Refurbishment tranches released 100,000 each at months 4, 7 and 10. Interest cost is not simply 1,000,000 times 0.90% times 12 (108,000). The actual cost is the time-weighted interest on each tranche, which works out closer to 85,000 across the 12 months.