If you are interested in alternative forms of finance and wondering what a UK bridging loan is for, then this article will help.
Essentially, bridging loans can be used for just about any purpose because the borrower will be offering security, such as a property, for the loan to be made.
For those who may not be aware, a bridging loan is a type of short-term loan that’s used by a company or a person wanting to pay an urgent bill, for example, a personal or business tax demand until they secure permanent financing or receive money from sales and suchlike.
The big attraction for accessing a loan is to access an immediate cash flow and while these loans are available for up to one year, some lenders will forward money as part of a two-year deal.
In addition to the borrower needing some form of collateral, the loans tend to have a higher rate of interest to reflect their flexibility and accessibility. This is explained in detail later.
Bridging loans are also referred to as ‘gap’ or ‘interim financing’ and essentially bridge the gap when someone needs money but doesn’t have financing in place.
Access a bridging loan UK to plug a cash flow issue
A business may decide to access a bridging loan UK to plug a cash flow issue – for example, a need to pay wages or buy stock for a promotion or even refurbish their premises, so they need working capital to meet these outgoings.
Bridging loans are also a popular route for property investors and landlords looking to build their portfolio.
Also, an investor can bid on a property at an auction and access the funds to buy the property before the auctioneer’s deadline falls due.
Many people will be aware of bridging loans when they are selling their home and want to buy their next property; there is a gap between having the money to buy and having the proceeds from the house sale. This is where a bridging loan is used and it will be repaid when the house sale goes through.
A bridging loan can be arranged quickly in a week or two, though if a borrower has a relationship with a lender already, then it’s possible to access funds more quickly, in some cases in just a few days.
Funding a short-term need
It’s this ability to access various amounts of money from several thousands of pounds to several millions of pounds, that makes bridging loans a popular way of funding a short-term need.
Another big reason why bridging loans have taken off in popularity, particularly among businesses, is the tightening of lending criteria from mainstream banks and finance firms.
Also, while high street banks still offer loans, it can take several months to access the money after a laborious application process is completed.
This means that people also see bridging loans as an alternative to mainstream lending and because the money can be used for just about any purpose, this helps boost their popularity.
For anyone considering a bridging loan, then there is terminology you will need to appreciate.
The first thing issue to consider is the ‘exit strategy’ because a bridging loan lender will want to know how you intend repaying the loan within the agreed terms.
Bridging loan rates UK
This brings us to the issue of bridging loan rates UK and a closed bridging loan, which will offer the best rate of interest, will have a date for when the loan will be repaid, while an open bridging loan will not – and will have a higher rate of interest.
There are also other costs involved with bridging loans and some lenders will have an administration charge of up to 2% of the loan’s value plus there will be a surveyor’s fee to be paid for valuing the security property.
It’s also important that potential borrowers shop around for the best deals because there’s a lot of competition in the marketplace with lots of lenders available to choose from.
It also helps that these lenders will have a bridging loan calculator on their website and this facility will help you determine which lender is offering the best deal for your needs.
The calculator will reveal how much the loan will cost over a set period so you can work out which firm is offering the best deal.
If you want to know what a UK bridging loan is and what it can be used for, as well as accessing great deals, then it’s time to speak with the experts at The Bridge Crowd.