Bridging loans are short-term credit option to “bridge” a gap between debt to be on due to overcoming a specific issue to complete an ongoing property loan quickly. Hence, the loan will cover the payment of the current loan to secure a more permanent form of financing. The credit platform is fit for property developers that make fast purchases on properties that they wanted to sell or refinance in a given limited period.
There is a difference in bridge finance to regular term loans. Bridging credit is for a specific short term purpose while term credits will be for commercial purposes. In reality, the difference is the timeline of approval. Term loans can get the funds in weeks or months while bridging loans are just within 24-48 hours.
When should you access and use Bridging Loan?
The loan platform can be in any purpose. It can be an investment to a property, buy-to-let and development. Lately, there is a noticeable increase in borrowers through bridging loans because financing firms and banks are taking a more extensive process in applications.
Bridging loan is tempting because of the feature on fast approval. If you are planning to get one, you must consider an exit strategy (which we will discuss in later part of this article). Thus, you might not have been able to grab a guarantee to get approval for a mortgage with a mainstream lending firm after taking bridge finance. You will surely be at risk of losing your assets used for assurance.
For example, if a property developer is building an apartment, the latter will strategically spread the costs for the company and will access bridging credit for 3-6 months that will fund their construction until completed. Indeed, the loan is expected to be paid-off after the period through the sale of the apartment or individual unit. Another option is they can move the bridging loan to a longer-term financing product such as a commercial mortgage.
Facts about Bridging Loan
Furthermore, Bridging Loan firms can come in different shapes and sizes. They are under the regulation of the Financial Conduct Authority (FCA). Before stepping inside a firm, go to an FCA regulated broker to get recommendations appropriate for your needs.
Here some critical facts about bridging loan:
1. These loans are quick
Bridging loans for property development is a way to get immediate access to build your capital. Seldom can you find the perfect property that you can use to grow your investment? Indeed, there is always a small space of opportunity to complete the sale. Moreover, Bridging credit can ensure you that you can have the funds that you need to beat the deadline to secure the property.
When finding a bridge loan firm, make sure that they will be aware of your time-frame and assess if they can deliver the time you require
2. It is flexible
This platform is more flexible than other lending instruments and traditional mortgages. Eventually, mainstream lenders will require you more information and requirements to comply than bridging financing firms.
Thus, necessary information that bridge finance lenders would often require is they need to know about the property as it is the property that is used to get a loan. The sale of which is the exit strategy to ensure loan repayment.
Although, the repayment terms can always be amended to suit your capacity. However, you are required to pay back the loan within the year.
It would be best if you kept in mind that before getting a bridge loan, define clearly your doable exit strategy.
3. A bridging loan can be for almost any type of property
When applying, the type of property is one of the most critical factors. These can be flats, house, apartment, commercial units, land, and shops. Significantly, whether your purpose is to invest in serviced apartments, buy-to-let or home in multiple occupations, bridge financing is always an option.
4. Financing Property development
For property developers and traders, property development projects can be supported through this credit facility. You might have a property that you need to renovate that you will sell on in a short time. However, lack of funds will cause a delay in achieving your ultimate purpose and growing your money. Conversely, the bridge financing can fast track your construction activities and sell the property at your target timeline and payback the loan.
Henceforth, getting to this business and accessing the loan, you need to develop a clear and full plan. It would help if you were sure that you would be raising the right figure of funding, forecast right timing and going to the proper bridge financing firm.
5. Renovation of uninhabitable homes
If your property is uninhabitable, bridging finance can make significant renovations. Usually, lending firms will not allow you to borrow money to do restoration of worn-out houses. The bridge loan can help you fund the cost of repair. Later on, you can sell the property for profit and help fund for your next project. However, doing this requires much experience in house renovations.
What is an “exit”?
“Exits” means how the borrower be able to either clear the bridge loan in full (with the interest costs) or move into a more permanent type of financing. There two kinds of bridge loans you can consider—closed bridging loans and open bridging loans. The closed loans are credits with fixed exit date while the open loans are given with the exit but fixed. You are asked to be given “up to” a specified period.