Bridging Loans Assessment Process
In last week’s blog we introduced bridging loans and looked at the pros and cons. This week we are looking at the initial assessment process. What factors do lenders consider prior to granting a bridging loan?
What Factors Do Lenders Consider?
When considering an application for a bridging loan, there are several key factors all lenders will look at as part of their decision-making process. These are:
- What the bridging loan is for
- The property asset being used as collateral for the loan
- The value of the property
- How the bridging loan is to be repaid
What Can a Bridging Loan Be Used For?
Bridging loans are frequently used by property professionals. They may be buying a property at auction and need to move quickly. Or perhaps they wish to acquire some land for development but have not sold an existing property yet. As such a bridging loan can be an ideal solution.
Funding Track has also arranged bridging loans for many different types of trading businesses. These include recent loans for a haulage company, a hotel and guest house, a printing company and a restaurant.
In these situations, the business usually has an urgent need for cash. It could be to overcome a short-term cash flow problem. However, we have also raised bridging loans to pay urgent tax bills or to buy-out a partner or co-director from the business.
The point is, if a business owner needs funds quickly, and they have a property asset available as security, then a bridging loan can be a great option for them.
The next consideration for a lender is: what is the collateral? For a bridging loan it is always a property. It can be a freehold or long leasehold property with the long leasehold typically being for 99 years or more.
The property type can vary, and most bridging lenders will consider residential, semi-commercial and commercial properties as well as land.
Value & Repayment
A key requirement is to have a valuation carried out on the property, as the valuation will dictate how much the lender is able to lend. Next, the lender will assess how the bridging loan will be repaid.
As part of their due diligence, a lender will ask you for specific details of how you expect to repay the bridging loan. If they are not fully satisfied with your proposals they may refuse to lend.
A satisfactory exit route can include the sale of a property or a refinancing of the bridging loan on to a longer-term loan or mortgage.
The Final Word
In this article we have briefly outlined the bridging loans assessment process. Next week we will conclude this series of blogs by considering the process in more detail.
Always remember that a bridging loan is exactly that – a loan to ‘bridge you’ through a short-term funding requirement and should never be viewed as a replacement for long term funding. So, make sure you have an exit strategy in mind from the outset.
Nevertheless, a bridging loan has a crucial role to play as part of an overall funding solution. It can be a great tool, when for instance, funding is needed quickly or for a short period.
As always if you would like to discuss your funding options, or believe that a bridging loan could help you, don’t hesitate to get in touch.