There are many reasons why a UK bridging loan can help people and businesses access large sums of money.
One reason may be they do not meet the criteria for a high street lender, for instance, or they may need access to a large sum of money quickly.
Bridging loans have grown in popularity in recent years as rising numbers of people appreciate that they can be arranged quickly, in just a few days in most cases, and the sums involved can range from several thousand pounds to £2 million.
However, there are pros and cons for this type of alternative finance and it’s not suitable for everyone.
The best way to understand a bridging loan is that it is a short-term interest-only loan; most lenders will lend for a maximum of 12 months though some do lend for two years.
In addition, the lender does not normally need to be repaid on a monthly basis since the interest payments can be rolled-up into the final amount to be repaid when the term ends.
Bridging loan UK lenders
It should also be appreciated that most bridging loan UK lenders will have an administration charge for processing the application and should a borrower use a bridging loan broker then they may also need to be paid.
Some loans will also need to have legal fees added though this depends on the loan.
So, while bridging finance is popular for those people for whom a traditional finance product may not be a viable route there are lots of positives too.
For instance, while interest does not have to be repaid, should the borrower repay the loan early then the interest will apply for that period only.
This means they may sign up for a one-year bridging loan but repay it after three months which means they will pay interest on the time they had the money and not for the full year.
Bridging finance firms are also willing to consider applicants who are usually older than most high street lenders would like to deal with and may also be asset rich but not have much cash.
Essentially, they may be living in a large expensive property but they may not earn enough to pass the proof of income criteria must lenders will be looking for.
Reasons for using a bridging loan
Other reasons for using a bridging loan include having a poor credit history which for many lenders is the main reason for not accepting an application for a loan.
Bridging loans are growing in popularity with property developers and buyers as well as landlords looking to expand their portfolio.
In addition, bridging finance can be used for purchasing a property that would not attract a mortgage and could be used to bring a property up to standard before the applicant applies for a mortgage to repay the bridging loan.
For instance, a mortgage firm will not lend on a property without the bathroom or kitchen or if it needs lots of work to modernise it.
Property developers also use bridging finance to exploit an opportunity while others may need access to a large amount of money to buy a property they buy at auction.
Growing trend for business people to use this type of finance
There’s also a growing trend for business people to use this type of finance to help plug a cash-flow problem or to buy stock for a special promotion. Others use them to refurbish premises.
Essentially, the borrower will need to put up security to cover the loan amount and the lender will have a first charge, or sometimes a second charge, on the security.
This means that should the borrower fail to repay the bridging loan, the lender will then utilise the security to reclaim their money.
It’s also important for anybody interested in bridging finance to appreciate how the loans work and while some lenders may offer 100% of a security’s value, others will operate to an LTV, or loan-to-value, for the necessary amounts.
Indeed, some potential borrowers may be wondering what happens if they cannot repay the loan when the agreed term comes to an end.
It’s for this reason many lenders will insist that the borrower understands what their exit strategy will be which means the borrower will already know how and when they can repay the money.
Bridging loan rates UK will vary
It’s also important to understand that bridging loan rates UK will vary and there’s a simple reason for this.
While high street lenders may have similar loan rates that’s not the case for alternative financing since the loan is a bespoke offering for the borrower’s own circumstances.
On top of this, the rates of interest being charged will vary for the amount of money being borrowed, the length of the loan and the security that is being put forward.
Essentially, a UK bridging loan can help many people buy a property or to utilise a financial opportunity quickly and for more information about what these loans can be used for and how to access them, contact the team at The Bridge Crowd.