When it comes to understanding bridging loan funding, it’s important to appreciate what bridging loans are and what they can be used for.
A bridging loan is a form of short-term finance that many people use for buying a property before their longer-term funding becomes available. For example, someone buying a house may use bridging finance until the sale proceeds from their current property are available.
This means they are using the finance to bridge the gap between the sale of their home and the completion date for the purchasing of their next property.
There’s a lot to recommend bridging finance since it enables homeowners who might be struggling to find a buyer for their property, to move into their new home before selling their current one.
However, property developers and businesses also use bridging finance as a way to access a short-term loan quickly and effectively.
Indeed, while a high street lender may take several weeks or months to process a loan application, a bridging finance firm can complete an application within 48 hours, sometimes in less than 24 hours.
That is a hugely attractive proposition for those who may need to move quickly to exploit a business opportunity or to buy a property at auction, for instance.
Short-term bridging loan firms still apply lending criteria
However, it also needs to be appreciated that short-term bridging loan firms still apply lending criteria to their borrowers and while they are quick at what they do, they still want to be reassured that they are lending money to a sound prospect.
Another big attraction for utilising bridging finance for business purposes is that the term of the loan can be for as little as just one day.
Most bridging loans are made for 12 months, though some lenders will offer a maximum of 24 months.
Another reason for looking at a business bridging opportunity is that the loans can start from several thousand pounds and rise to several million pounds, depending on needs, circumstances and a firm’s ability to repay the money.
It’s for this reason why many businesses and individuals, which includes property investors, developers and professional landlords, are using bridging finance as part as their overall finance strategy since the loans can be arranged on a second charge basis.
Property professionals looking for bridging loans UK
So, why are property professionals looking for bridging loans UK do so? The answers include:
- They can raise finance quickly
- The bridging loan can be used to refurbish or finish a property
- Bridging finance can be used to buy a property at auction
- The money can be used to buy a property that a mortgage lender would not offer a mortgage on
How much does a bridging loan cost?
It needs to be appreciated that bridging finance is a specialist finance that is fulfilling a short-term need so will tend to be more expensive than for finance from a traditional lender.
However, with growing numbers of bridging lenders entering the market, the competition for custom has increased which has had a knock-on effect on the interest charges and fees.
This means it’s also important that firms and individuals shop around to find the best rate of interest on the loan since there’s no one-size-fits-all offering and rates do vary between lenders.
Bridging finance firm will have a calculator on their website
The bridging finance firm will also have a calculator on their website which makes it easier for individuals and businesses to check what they are offering and how much it will costs which makes it easier to compare offers between lenders too.
Among the fees that will be charged is the lender’s arrangement fee and some have an administration charge as well.
Some lenders also charge an exit fee when the loan is repaid; for those that do charge this their fee is usually around one month’s interest and will be charged regardless of whether the loan is repaid early or at full-term.
Businesses interested in bridging finance will also need to appreciate that this is a type of secure borrowing so they will need to put up security such as property or land, and some lenders may also be interested in stock or other forms of security.
This may mean a surveyors fee will be charged so a property survey can be undertaken and there may also be a need for legal fees to be paid.
Questions a potential bridging loan borrower needs to consider
Among the questions that a potential bridging loan borrower needs to consider is how they will repay their bridging loan.
It’s important to appreciate that when a firm or an individual contemplates bridging finance that they understand their exit strategy and that failure to repay the loan when the term falls due means they run the risk of losing their security. Most lenders will understand if there are problems repaying on time but this may lead to higher interest rates being charged and extra fees as well.
Finally, the business or individual will need to select a bridging lender and with a wide range to choose from, this can be a time-consuming undertaking.
There’s no doubt that bridging finance is a specialist area so it might also be a good idea to seek independent financial advice or it will pay to speak with the friendly team at the Bridge Crowd who have years of experience in delivering short-term bridging loans.