For many people, short term bridging loans are an excellent way to access capital quickly and for a range of purposes but mainly for buying property.
The loans were used originally to bridge the gap between someone buying a house, for instance, and then selling their current property to repay the loan itself.
While bridging finance has grown in popularity, it should also be appreciated that the borrower will be using property or land as a security for the loan itself.
This means that there is a wide range of people, and indeed limited companies, who will enjoy utilising the flexibility and accessibility that this form of alternative finance delivers.
Also, those who are interested in a bridging loan can access large amounts of money very quickly.
To put this into context, it is possible to borrow any amount from several thousand pounds to several million pounds, depending on the bridging loan lender, for a variety of purposes.
Application process for short term bridging loans UK
The application process for short term bridging loans UK is also much quicker than that for mainstream lenders so it’s possible that someone wanting to access capital quickly can do so in just 24-hours.
In this particular instance, it is highly likely that the bridging loan borrower is already known to the lender and has a track record of quick repayment.
This type of finance is also popular with those looking to buy property at auction since the buyer will need to complete the transaction with 28 days so accessing traditional finance makes this an attractive proposition.
However, once they make a bid on a property at auction the borrower is likely to source the funding from a bridging finance lender within a few days to complete the sale.
Property developers also use bridging finance and they can, for instance, buy a property that is uninhabitable and redevelop it so it will secure a mortgage.
That’s because lenders will not traditionally lend money on a property that has no bathroom or kitchen or indeed running water or central heating.
Property developers can also use bridging finance to develop or renovate a property and then sell it on within a few months or look to refinance it with a mortgage, for instance.
This means that a bridging loan is an excellent way for a developer to access short-term capital for developing a property and then selling it on for a profit.
A bridging loan can be used to buy most types of property
As an alternative form of finance, a bridging loan can be used to buy most types of property whether commercial, semi-commercial or residential as well as buying land. The money can also be used to build property.
A lot of this depends on the lending criteria of the bridging loan lender and the loan amount depends on the value of the security.
This means that some lenders may only forward a few thousand pounds while others may be happy to loan several million pounds.
Also, while many lenders cannot process a bridging loan quickly, the industry average for processing an application is around two weeks.
It also needs to be appreciated that the lenders will charge an administration fee for this application to be processed and some will also need to pay legal and valuation fees as well.
Obviously, with these extra costs, bridging loans tend to be more expensive than those being offered by banks and building societies.
In addition, bridging loans tend to have a higher rate of interest to reflect the nature of the loan and the short-term flexibility.
Bridging loan calculator on their website
Indeed, there is no set rate of interest and the bridging loan lender will offer different rates for different amounts though all of them will have a bridging loan calculator on their website.
The bridging loan calculator will make it easier for the potential borrower to see how much it will cost to borrow a certain amount of money and how much the administration charges will be for doing so.
It’s also important to realise that while bridging lenders will charge an administration fee for processing the application, not many will charge for early repayment of the loan itself.
Also, the bridging loan lender will ask a potential borrower what their exit route is for the money being loaned.
This means they want to know how and when the borrower will be able to repay the money and most loan will only run for up to a year but some lenders will loan for up to two years.
By doing so, the bridging finance borrower will have to know when the loan can be repaid, this will be known as a ‘closed’ the bridging loan, whereas if the borrower does not know, this will be known as an ‘open’ bridging loan.
For more information about what are short term bridging loans and what they can be used for, then it will be time well spent speaking with the helpful team at The Bridge Crowd.