There are times when businesses and people need to borrow substantial amounts of money at short notice which is why the popularity for a short term bridging loan is increasing.
While many others will rely on bank overdrafts as well as credit cards as a way to resolve a short-term finance requirement, alternative methods of finance are available.
This is why firms and landlords are looking towards bridging loans because they can access finance facilities quickly for a repayment period of between one month and 24 months, though 12 months tend to be the longest period for bridging finance with many lenders.
Essentially, a bridging loan is used to bridge a gap in finance for the borrower, for example, when buying a property and the completion date for the seller’s current house is after the deadline for buying their new home.
The bridging finance helps bridge that gap in funding and the lender is aware that the finance to repay the loan will be available when the current home sells.
Bridging loan funding for businesses and landlords
There are some very good reasons why bridging loan funding for businesses and landlords, for example, makes sound business sense. For example:
- They are quick to arrange: As mentioned previously, a bridging loan can be arranged in as little as 24 hours, depending on the borrower’s circumstances and the amount required, whereas a High Street bank may take several weeks to complete an application.
- They are cheaper option: In many circumstances, a bridging loan offers a cheap option for those needing large sums of money but only for a short period of time.
- Bridging loans are flexible: Unlike high street lenders, bridging loan finance firms are more flexible over an applicant’s credit history, for example, and also proof of income.
- A wide range of purposes: Bridging loan lenders are open to a wide range of purposes for the money such as repairing and renovating the property to buying stock for a business.
Be aware of the bridging loan rates
For anybody interested in bridging finance, then they will need to be aware of the bridging loan rates – they are varied and for good reason.
Indeed, anybody looking for bridging finance may be confused as to why the interest rates being offered by various lenders vary so much.
There are reasons for this and that’s because the lender will have their own criteria for the interest rate to be applied depending on the borrower’s circumstances, what the bridging finance will be used for and, more importantly, the value of the security, usually property, which is being used.
Most bridging lenders will have an easy-to-use calculator on their website so anybody interested in this type of financing will be able to see quickly how much it will cost them to borrow a set amount of money.
Also, larger amounts of funding tend to be cheaper with most lenders.
Bridging finance can be arranged quickly
As mentioned previously, bridging finance can be arranged quickly and easily and for those who have a track record with a particular lender, for instance, then these loans can be arranged in just a day or so.
Other lenders, depending on the purpose of the loan, may be looking for a survey of the property being used as security to be carried out and they may insist on other legal work to protect their financing.
However, there is a wide range of bridging finance lenders in the UK who are willing to offer a variety of loan sizes for a variety of purposes.
This means that someone looking for several thousand pounds or even several million pounds will find a bridging loan company to meet their needs.
Bridging finance is a popular choice
For those interested in bridging finance, they will find that over the short-term their lending costs will be lower than those offered by high street banks. Indeed, this is one of the reasons why bridging finance is a popular choice for growing numbers of borrowers and companies.
However, there are other issues that potential bridging finance borrowers need to appreciate before they contemplate taking out a bridging loan.
The most important issue a potential lender will be interested in, along with a borrower’s ability for repaying the money, is whether the borrower will be needing an ‘open’ or a ‘closed’ bridging loan.
Essentially, this is a way to describe the borrower’s exit strategy when it comes to borrowing large sums of money with a bridging loan.
To help explain this, an open bridging loan is when the borrower does not know when they will have the money to repay the bridging finance whereas, with a closed bridging loan, they will know when the funds will be available to repay the loan.
Obviously, lenders offer better rates of interest for those borrowers who opt for a closed bridging loan since they will have the funds available at a set date and meet the lender’s requirements.
Finally, the uses for bridging finance really do vary and while most people know these loans as an excellent way to buy a house while selling their current property, others are using them to buy property at auction, for instance, or for refurbishing a property to sell on quickly.
Firms are also using bridging finance to refurbish premises, buy stock for a promotion or to meet a cash flow problem.