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BRIDGING LOANS

In recent years, bridging loans have become an increasingly popular funding option that can assist you in a myriad of different ways.

In the past, bridging loans were most commonly used by property professionals such as investors, landlords and property developers who needed to “bridge” between one property and another.

However today, bridging loans are used by many business owners for a variety of reasons.

 

Here are some of the reasons, we have helped clients raise bridging finance:

  • assisting with the purchase of another property whilst an existing property is being sold
  • to buy a property without planning permission whilst a planning application is made
  • to provide short term working capital for a business
  • to buy out a partner
  • to facilitate a divorce settlement
  • to pay an outstanding tax bill or other debt
  • to buy a property at auction
  • to cover the cost of expansion
  • to buy additional stock

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Bridging loans can be invaluable in facilitating the raising of finance that otherwise may not be possible.

They are usually quick to arrange as can be used for virtually any purpose. Consequently they offer great flexibility.

 

How long can I have a bridging loan for?

A bridging loan would normally be available for between 6 and 12 months.

The key for any lender providing a bridging loan is that you must be able to demonstrate a clearly defined exit strategy as to how the bridging loan will be repaid at the end of the term.

This would normally be by selling the property on which the bridging loan is secured or refinancing onto a longer-term mortgage.

 

What types of property can be used as security for a bridging loan?

A prerequisite of any bridging loan is that the loan is secured on a property asset on which the lender can take security.

It can be virtually any type of property, and over the years I have raised bridging loans on many types of property. These have included residential and commercial properties, investment properties, development properties, warehouses, retail units, hotels, and plots of land with or without planning permission.

A bridging loan is a great short-term option, where funds are required quickly, and we have helped clients raise finance within a matter of days.

However, please remember that a bridging loan is exactly that – short-term.

It is a loan to ‘bridge you’ through a short-term funding requirement, and certainly not a replacement for long term funding.

However, a bridging loan has a crucial role to play as part of an overall funding solution and is a great tool when funding is needed quickly or for a short period.

To find out how we can help you raise funding quickly, contact one of our team.

There was a time, when bridging loans had a bad reputation. They were often viewed as prohibitively expensive and only used when no other funding option was available.

However, in the last 10 to 15 years, bridging loans have become much more mainstream. They are now an increasingly popular and useful funding option that can help potential borrowers in numerous ways.

Bridging loans continue to be a popular tool for property professionals. For example investors and developers who need to bridge between one property and another.

However, today bridging loans are used by many different types of business owners for a variety of reasons.

Reasons for Obtaining a Bridging Loan

Funding Track have helped clients in obtaining bridging loans for the following objectives:

  • assisting with the purchase of another property while an existing property is being sold
  • buying a property without planning permission
  • providing short term working capital for a trading business
  • buying out a partner
  • facilitating a divorce settlement
  • paying an outstanding tax bill
  • buying a property at auction
  • helping a business cover the cost of its expansion plans
  • buying additional stock
  • paying a large, outstanding invoice

What Exactly is a Bridging Loan?

Bridging loans are essentially that. They bridge a gap between where you are now and where you would like to be. As a result, they can be invaluable as a means of raising finance for a specific purpose that otherwise may not be possible.

However, a prerequisite for any bridging loan is a freehold or long-leasehold property, and the bridging loan will be secured on your property asset.

Because it is in effect a “stop-gap” measure, the cost of a bridging loan can be significantly more expensive than a commercial mortgage or other type of finance. As such you need to build it into your calculation of costs. This will inform whether a bridging loan is right for you.

How Does it Work?

As mentioned the prerequisite of any bridging loan is that the lender can secure their loan on a property asset.

It can be virtually any type of property, and over the years we have raised bridging loans on a variety of property types including:

  • residential and commercial investment properties
  • development properties
  • offices
  • warehouses
  • retail units
  • hotels
  • and even land with or without planning permission.

Essentially the lender will take a first charge (or sometimes a second charge) on the property you are offering as security, up to an agreed level based on the value of the property in question.

First Charge means a legal charge over the property, which is the lenders security for the loan.

The bridging loan will typically be for a period of 6 to 12 months, and at the end of the loan term, must be repaid. As such, one of the key requirements for any lender offering a bridging loan is a clearly defined exit strategy.

Pros & Cons

Pros of Bridging Loans

Speed is a key attribute. Typically funds are required with some degree of urgency and a bridging loan can be arranged and put in place quickly.

In addition you do not have to provide huge amounts of supplementary information to support the loan application. Often a valuation of the property asset will be the key requirement.

Cons of Bridging Loans

Bridging loans can be an expensive way to borrow. Plus you need a property asset to secure the bridging loan against.

They are only a short-term solution, therefore, you must have a clearly defined exit plan and long-term strategy.

The Final Word

This week we have provided an introduction to bridging loans. Perhaps this is just the kind of funding solution you are looking for?

Over the next two weeks we will explore the topic in further detail, looking at all the available options and bridging loan parameters.

In the meantime if this has piqued your interest and you would like to discuss your funding requirements in more detail, don’t hesitate to get in touch.