If you are interested in accessing finance quickly or want to know more about alternative finance, then these are our tips when looking for short term bridging loans.
Traditionally, bridging loans were used to bridge the gap that occurred when a property was being bought and sold within a chain but the completion dates could not be organised on the same day.
This called for a finance facility to help offer money for the short-term to complete the purchase of a new property while the funds from the sale came through.
Essentially, the reasons why short-term bridging loans have taken off in the UK include:
- Bridging loans are quick to arrange
The loans are a popular way for those looking for funds to snap up a potential bargain. For example, someone buying property at auction will be reassured that the application process will be completed within a few weeks to meet the auctioneer’s deadline.
- A relatively cheap option when borrowing large sums of money
If you or your business need a substantial amount of money, but only for a short period of time, then bridging finance could be the solution. In comparison to longer term finance products, bridging loans tend to have a higher monthly rate of interest, but lower set up costs.
- Bridging loans are flexible
For many reasons, bridging lenders tend to be more flexible when it comes to approving applications since borrowers will need security, usually a property, for access to the money. This means many lenders may not be interested in the borrower’s proof of income or their credit history or arrears.
- Bridging finance is flexible about the type of security property
Whether you have a property that is in a poor state of repair or isn’t a usual property type, including non-standard construction, then there will be a bridging lender who will consider the property as acceptable security for their loan purposes.
The bridging loan rates
However, before you even consider taking out a bridging loan, you should understand what your exit strategy will be as this will affect the bridging loan rates being levied.
This means that you will need to know how and when you will be able to repay a bridging loan, whether it’s at the end of its term or before.
One reason for this is that the higher monthly rate of interest can make them expensive if you use the loan for anything other than for meeting a short-term need.
There’s also the chance that the lender will charge renewal fees if you go over the agreed loan term.
Your exit strategy should be clear from the outset so if you know when the money will be available to repay, then this is known as a closed bridging loan.
If you do not know when the finance will be available for repaying a bridging loan, this is an open loan and they tend to attract slightly higher rates of interest.
Use bridging finance
But it’s not just for personal reasons why someone may decide to use bridging finance for meeting a short-term need. A borrower may, for example, have a large tax demand that needs paying or they may want to refurbish a property that will not attract a mortgage until it is renovated.
However, businesses can also access commercial bridging loans to cover a short-term cash flow issue or to buy help fund a large order.
Again, commercial customers will need an exit strategy in mind when it comes to repaying.
Another big attraction for bridging loans is that depending on the value of the security being offered, a potential borrower can access substantial amounts of money ranging from several thousands of pounds to several millions of pounds for meeting a pressing need.
It’s this flexibility and quick application process that has helped underpin the growing success of the bridging loan market.
This compares with a mainstream lender who may take weeks or months to process an application and then demand lots of information and possibly security before the process is complete.
One reason for this is that mainstream lenders have tightened their lending criteria and have made it more difficult to access funding for both personal and commercial customers. That’s not been the case for bridging loan lenders and while their lending criteria will vary, the process is fairly similar and much quicker than a mainstream lender will have in place.
If you would like more help and information about short-term bridging loans, then you need to speak with the team at The Bridge Crowd.