For growing numbers of people and businesses, a UK bridging loan has a wide range of uses and many advantages which is why this flexible form of finance has become so popular.
Those who are looking for a short-term financial fix, bridging loans often provide the cheapest of the available options when it comes to raising funds quickly.
On top of this, the lenders have flexible lending criteria and the loans are quick to arrange – bridging loan lenders will be able to approve an application without carrying out extensive checks.
One reason for this is that the borrower may be offering security for the loan in the form of property and this may include a type of property that other lenders would consider to be unsuitable for lending money on.
Traditionally, bridging loans were used to maintain a place in the house buying chain; a home buyer could buy a new property while awaiting the proceeds of their home’s sale.
This means they only need a large amount of money for a short-term so they have a gap in financing that needs to be bridged, hence the term bridging loans to describe their purpose.
Uses for a bridging loan UK
However, others have found more uses for a bridging loan UK and they are a popular choice for property developers and for those who are buying a property at auction.
For those buying at auction, they will need to put down a 10% deposit typically on their winning bid and pay the balance within 28 days.
However, some property auctioneers have a shorter period for completing the purchase and accessing a bridging loan quickly will enable the property developer to meet this deadline.
There’s also an appeal for those wanting to snap-up a property bargain but who don’t have the funds available but they do have an asset or capital tied up in property.
This means a bridging finance firm will look at their application and process it quickly because the available equity in the property being put up as security will cover the loan’s value. Indeed, the borrower can use a range of property types as security for their bridging loan.
This means bridging lenders will accept security from residential, commercial and semi-commercial property types. These can be freehold or leasehold and may include houses, shops or commercial units.
In addition, a borrower could offer a property that is in poor condition or even derelict – it all depends on how much the property is valued at.
In this instance, the bargain property can then be sold for a profit and the bridging loan repaid easily.
The buying of property with bridging loans
While many borrowers will focus on the buying of property with bridging loans, they are also a source of finance that is becoming increasingly attractive for businesses.
Along with buying stock or even refurbishing premises, a bridging loan can also help a business overcome any short-term cash flow problems they may be experiencing.
Among these may include a customer paying an invoice late or having an unexpected demand for new equipment.
So, while the most common purpose for bridging finance is for buying property, others use them to convert, restore and renovate properties.
This is a particularly popular choice for those who want to renovate a property, for instance, that would be considered unsuitable for a mortgage by mainstream lenders.
This is because the property itself may be in a poor condition or it may lack a bathroom or kitchen which would preclude it from mortgage lending criteria.
Access bridging finance to renovate property
In this example, a property developer would be able to access bridging finance to renovate the property and then sell it on or even obtain a mortgage on it and then repay the bridging finance.
So, those are the purposes of bridging loans and they come with a range of advantages.
The first is that they are quick to arrange for those who need large sums of money quickly.
While mainstream lenders may take weeks or months to arrange finance, a bridging loan lender can meet the borrower’s demand and have the money delivered in 48 hours.
On top of this, bridging loans have flexible lending criteria and most lenders are not generally too concerned about the borrower’s income or their credit history.
The bridging loan rates UK to be charged
While lenders are flexible they will want to know the value of the property being offered as security and also the borrower’s ‘exit route’ which will also help determine the bridging loan rates UK to be charged – and these will vary between lenders.
When the bridging finance firm discusses exit routes this is their way of asking how their loan will be repaid and when.
This means there will be two terms used when discussing this: the lender may offer a ‘closed’ bridging loan because the borrower will know how and when they will be able to repay the loan itself.
The alternative for those borrowers who may not know when they can repay means they will opt for an ‘open’ bridging loan.
As mentioned previously, there are many advantages for using bridging finance and they have a wide range of uses and with mainstream lenders tightening their lending criteria, the opportunities available for borrowing from bridging finance lenders has helped boost their popularity.