Even though they are growing in popularity, not everyone appreciates what short term bridging loans are for.
Essentially, they can be used for a wide variety of purposes including buying a property, refurbishing it or using the money for a business opportunity.
Rather than a traditional loan, a short-term bridging loan is more or less self-explanatory since it’s over a shorter term and bridges a financial need between be borrower having to buy something, for example a property, and then having money to pay for it, for example having the mortgage be approved.
The bridging loan interest rate is charged daily or monthly while it is outstanding, that is to say before the loan is repaid, and this rate Very depending on the length of the law and what it is to be used for.
Borrower has an exit route for their bridge loan
It also helps if the borrower has an exit route for their bridge loan so the lender knows how the loan will be repaid and I will be paid on time. This is known as a ‘closed’ bridging loan.
Alternatively, some borrowers may not know when they can repay the bridging loan and these are known as ‘open’ since the exit strategy has not been clearly defined and is usually charged at a higher rate of interest.
A bridging loan can vary in size also though if it’s for buying property, there’s usually a loan to value, or LTV, of 75%. Some lenders will give 100% depending on the property type and if the borrower has a good credit rating.
Bridge funding will run for anything up to 12 months
Usually, bridge funding will run for anything up to 12 months though some lenders will allow them to be run for longer. The rates of interest also vary from 0.5% to 1.5% on a monthly basis.
Lenders also charge an arrangement fee so anyone interested in short-term bridging loans needs to appreciate that the amount they actually require will grow once the interest and administration charges have been added.
However, for many borrowers short-term bridging loans deliver a quick way of accessing large amounts of credit in a short period of time, some lenders will agree on application within a day or two while others will take a week or more. For many business opportunities, for instance buying a property option, this is a way to raise the funding for an investment that can then be repaid easily.
For an information about short term bridging loans, please contact the helpful team at The Bridge Crowd.