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Everything you need to know about bridging loans

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Being able to use bridging finance is a great tool to have under your belt, and many property developers find bridge loans an essential part of the process, helping them to complete their property transactions quickly and easily. However, it is still important to be aware of the potential issues that come hand in hand with this type of financing, as if not used correctly it can potentially become a costly venture. 

What are bridging loans and how do they work?

Bridge loans or bridging finance are a short-term financial solution, originally designed to ‘bridge the gap’ between purchasing a property and securing a longer term loan solution, such as a bank loan or mortgage.

Bridge loans are a secured loan, this means that they are secured against an existing property or asset that you hold equity in. The beauty of bridging loans, is that because they are a secured loan, there is little in the way of set criteria and credit checks, meaning the process is extremely quick and smooth. This means generally, as long as you hold enough asset in the property you use as security, you will be able to get a loan, even if you have bad or adverse credit history.

How are bridge loans useful?

Let’s assume the perfect property suddenly comes up for sale or appears at an auction. Naturally, you don’t want to miss out, but your current financial situation means you don’t have the available capital to act on the purchase, meaning you could miss out on a potential bargain.

Applying for a mortgage in this situation probably wouldn’t work due to timing constraints imposed by credit checks and due diligence, and by the time your bank or building society makes a decision the property will more than likely already be sold.

This is where a bridge loan becomes the ideal solution. By choosing bridging finance, you can release equity held in an existing property or asset, and use this to make a down payment on the property (or buy outright). This is especially important when buying properties from auctions, as they impose strict completion timings. The borrower than has couple of options;

  1. They can then apply for the longer term finance, such as a bank loan or mortgage.
  2. Opt to complete any renovations and resell the property within the term of the bridge loan.

What is the repayment duration of a bridge loan?

The general duration of a bridge loan (sometimes referred to as gap finance) would range between 1 to 12 months, however, there is always the option to negotiate with the lender an extension or strike a new deal.

Unlike regular bank loans or mortgages, bridge loans do not attract a regular monthly repayment schedule. Instead the loan is paid off in complete, along with any interest and charges at the end of the loans term. This gives the added bonus of not having to worry about making these regular payments each month.

How long does it take receive funding?

This varies from lender to lender, however in some cases it is possible to receive the funds on the same day as applying for the loan. Due to the limited credits checks required, bridging finance is an extremely quick process.

How much can you expect to be able to take out with a bridge loan?

You can expect to be able to borrow up to 80% against equity you hold in the property. The amount you can take out will vary from lender to lender, when you take a bridge loan out with bridge direct it is possible to borrow £30,000 to £500,000 instantly.

What are the interest charges on a bridging loan?

The interest rates attached to bridging loans are generally a little higher than the rates you will get form a longer term loan, like a mortgage, as is the case with most short-term loans. This rate of interest will vary from lender to lender, but it is important to note that this will be inflated if running through a middle man, such as a broker.

However, it is important to note that the increased interest can soon be negated when you take into account the time a bridge loan will save on both application and a properties development.

When this finance is really useful?

For years bridging loans have been associated with property purchases, and rightly so, as they are a perfect solution to help property developers quickly buy, develop and sell properties and projects, without relying on the sale of another.

However, bridge loans can be taken out for any business application. In recent years it has becoming increasingly common for bridging loans to be used to;

  1. Pay off large tax bills.
  2. Kick start new projects.
  3. Inject cash to speed up the development of projects.
  4. Maintain cash flow whilst awaiting large customer invoice payments.

What is required to take out bridging finance?

Generally bridging loan lenders will require the following from you:

  1. Proof of income
  2. Current value of your existing property (such as a valuation certificate)

Where can you take out a bridge loan?

Bridge Direct, are a direct lender of bridge loans for any business application. When you contact Bridge Direct you can be assured you are speaking directly with the decision maker, and that no middle men are involved. This is why Bridge Direct can give you their guaranteed instant decision on all bridging loan applications.

The team at Bridge Direct has more than 30 years of loaning experience and will be able to help talk you through the process and find the best possible deal for you and your situation.  

You can call the team on 020 3126 4969 or complete the application form as the top of the page for an instant callback.


Tags: Bad Credit Finance, Bridge Loans, Commercial Bridge Loans, Gap finance, Secure mortgage, Short term bridge loans

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