There are many reasons why short term bridging loans are growing in popularity and they might be suitable for you if you need to access a large amount of money quickly.
Bridging finance is generally used to bridge the gap between the due date of a debt and the arrival of the capital for the loan to be repaid.
For example, most people are aware of bridging loans when they need to buy a property and are in the process of selling their home. In this instance, the lender will know that the borrower will have the funds available to repay the bridging loan when the money from their home’s sale arrives.
Another attraction for using bridging finance is that they can be accessed quickly; many lenders can arrange finance in a few days.
That’s not the way with high street lenders who not only have stricter lending criteria but can take weeks and even months to arrange a loan.
The bridging finance will help plug a gap the borrower may have for their financing needs so it’s not just about buying a new home.
Bridging loans are popular with property developers
Bridging loans are also popular with property developers and those wanting to buy property at auction. They can make a bid on a property they want to buy and be confident they can arrange the finance before the deadline for paying.
However, the short-term nature of bridging finance means they can be dearer than a high street loan so they need to pay to be paid off as quickly as possible.
Indeed, most lenders will offer a loan for up to one year though some are willing to offer two-year deals.
Along with the interest which is charged monthly, the borrower also needs to pay an administration fee when the loan is arranged. Some lenders may also have hefty exit fees as well when the loan is repaid.
If you are interested in bridging finance it is always worthwhile shopping around to find the firm with the best offer and some firms will offer free bridging loan advice, including The Bridge Crowd.
This specialist finance facility means borrowers can quickly access a few thousand pounds for a pressing need or several million pounds depending on the lender they approach.
Reasons why bridging finance is a popular form of finance
The reasons why bridging finance is a popular alternative form of finance include:
- Bridging loans are quick to arrange
If you need money quickly to snap up a bargain then bridging finance could be a solution.
- A cheap option over a short period
Bridging finance can be a cheap option if you’re borrowing a large amount for a short time.
- Bridging loans are flexible
Bridging loan lenders tend to be more flexible when it comes to underwriting a loan and the security property used to secure the funding will be the most important element. Indeed, some lenders may not take any notice of the borrower’s credit history or their proof of income.
- A wide range of property can be used as security
Bridging finance firms are also open to the condition and type of property that a borrower may put forward as security. Whether it’s in a poor state of repair or needs renovating, the lender may consider it. Also, unusual types of property could be considered as acceptable.
Bridging loan rates
Having looked at whether a bridging loan is for you, it’s important to consider your exit strategy as it may also have an impact on the bridging loan rates.
So, while we mentioned that this finance is suited as a short-term method for finance, you still need an exit strategy in place which means the lender will know when you plan to repay the loan at the end of its term or before.
For those who go over their agreed bridging loan term, they may be liable to additional fees including renewal fees.
Essentially, your exit strategy will detail how you will clear the bridging loan and if you know how and when you can do this, then the lender will refer to it as a ‘closed’ bridging loan.
If you are not so sure about how and when the finance will be repaid, the lender will call this an ‘open’ bridging loan.
Along with being quick to arrange, bridging finance is also popular because it can be used for a wide range of purposes and not all will be related to buying property.
Bridging finance borrowers may use the money for any suitable purpose
For example, bridging finance borrowers may use the money for any suitable purpose that the lender agrees to which may include paying an urgent and unexpected tax bill or buying stock for a business sales promotion.
Just about any purpose will be considered so long as the security property is suitable.
If you want to know more about short term bridging loans and what they can be used for, then it’s time to speak with the experts at The Bridge Crowd.