It should be appreciated that short term bridging loans are a short term funding vehicle and used to ‘bridge’ the gap between a debt that needs paying and money coming in.
For instance, bridging loans tend to be used for property transactions with someone buying a home wanting to make a quick purchase but they haven’t yet received the money from the home they are selling. A bridging loan ‘bridges’ the gap between the transactions.
For many borrowers looking for short-term financing, bridging loans are an invaluable way to buy a property they want and are for many people an excellent stopgap measure.
For this reason, it should also be appreciated that they can be dearer than a mainstream loan.
How does a bridge loan work?
So, how does a bridge loan work in reality? As we have seen, bridging loans help someone buying a property to complete the purchase before they have sold their current property so they are essentially wanting access over the short-term to a lot of money.
In addition, bridging loans are also popular for people wanting to buy property at auction and for those who are looking to renovate a home and then, potentially, selling it on quickly after the work is complete.
There’s no doubt that mainstream building societies and banks have become reluctant in recent years to lend money as freely as they once did. The result has seen a growth in the number of bridging lenders coming to the market.
In addition to offering quick access to large sums of money, the interest rates for the bridging loans tend to be higher and there’s also an administration charge on top.
Bridge funding is also popular with property developers and landlords
Bridge funding is also popular with property developers and landlords who need to buy a property at auction and then developing it for tenants or to sell on quickly. The loans are also popular for those who want a straightforward loan on a residential property.
Along with investing in buy to let property development, bridging loans can also be used for a wide variety of purposes including businesses buying stock or using the loan to pay wages, for instance, until a large invoice is paid.
While bridging loans offer convenience and a quick turnaround, those thinking about taking a loan out should have their exit strategy in place before doing so. This is a way for the lender to appreciate how the loan will be repaid and when.
As we’ve already mentioned, bridging lenders in the UK come in a variety of shapes and sizes and offer a variety of short term bridging loans for a number of different purposes so for anyone who is interested and would like more information, then they should contact the helpful team at The Bridge Crowd.