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What are Bridge Loans and how should we use them?

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Every type of mortgage and loan contains its own unique benefits and pitfalls. Nowadays, there are hundreds of different loan types available, and any number of them could look like the perfect fit for your situation. However, it is important to weigh up the different option available to you to ensure you take the right option. 

Bridge Loans are an ideal option when you are looking to purchase a new property (or asset), but don’t necessarily want to sell an existing property or asset. For example, you may find a property at auction that with a little extra tender loving care and coat of paint, could be resold immediately for a substantial profit. In this case you’d be looking to try to secure the funds as quick as possible for the following reasons;

  1. As the property is being purchased at an auction, there will be a time constraint attached to have funds transferred over
  2. The sooner you get the funds the sooner you can flip the property.

Here, opting for a standard mortgage probably wouldn’t work due the amount of time required to get the funding approved, but also you would be tying yourself into a long term funding solution with penalties for paying the mortgage back early. By using a bridge loan form Bridge Direct, you would be able to get funding quickly, and repay the loan without incurring any early settlement penalties.

It is important to consider what your current situation is before using a bridge loan. Below are some considerations to make;

Bridge loans duration

Bridge loans are a short-term funding solution, originally designed to ‘bridge the gap’ between the borrower purchasing a property and securing a longer term solution like a mortgage or a bank loan. More recently however, they have become an ideal solution for business to kick start any kind of project whilst they await funding from any other source, such as customer invoice, or tax rebates. The term for bridge loans differs from lender to lender, Bridge Direct will be able to offer deals from 6 months to 12 months in duration. However, there is the option to extend or even make a new deal and roll the loan over at the end of the term.

Application of the Bridge Loan

Bridging loans are best applied when you have a known date of repayment, in this case they are known as closed bridge loans. With a closed bridge loan you know the term of the loan and when funds will be available to repay it, this could be when funding from a longer term loan like a mortgage becomes available.

It is also possible to use a bridge when the date of repayment is not known, here they are referred to as open bridge loans. In these cases the borrower would try to source a longer term financial solution or way of paying the bridge loan off. As the term of the loan can be 12 months this gives the borrower plenty of time to find an appropriate option.

The aim of bridge loans is to enable purchases or services to continue by releasing equity held in a property or assets quickly and easily. These types of loans are also available to those suffering with bad or adverse credit, giving them more time to source a mortgage or loan provider.

Why is Bridging Finance an important option?

Bridging loans are a short term finding solution, but allow borrowers to release equity from existing property or assets instantly. With a mortgage or bank loan, this is normally assessed on current income rather than assets owned and are repayable over a longer term using regular monthly repayments.

With the recent economic crisis still in the backs of the bank minds it mean these additional checks and due diligence can mean it can be weeks or even months before you get approved. Whereas with a bridge loan from Bridge Direct, there are no credit checks, 1st and 2nd charges are accepted and each job is assessed on its’ own merit.

Due to speed in which funds can be released, this makes bridge loans very beneficial not only for property purchases, but for any business application.

Loan Repayment and Interest Rates

As with all loans interest rates are an important aspect to consider. Commercial bridge loans in general do generally carry a higher rate of interest when compared with long term finance like a mortgage. The reason being the possibility of risk are greater as well as factoring in the shortness of the loan period.

However, when looking at the broader picture, the higher rate of interest can be negated when compared to the cost benefit a bridge loan can introduce. For example;

  • Reduced rates of interest if paying off a tax bill
  • Allows the borrower to hold off on selling the secured property until a higher offer comes in
  • Allows the borrower to hold off from selling until the property market in the area picks up
  • Having access to the funds allows for a better price to be negotiated on the property sale

With a traditional mortgage or bank loan, you will be tied in for a long time and need to make regular monthly repayments. There will also be penalties incurred for early settlement. Neither of these points apply with bridge loans, as all funds are settled at the end of the loans term, and early settlement does not necessarily incur any additional charges.

Bridge Loan Acceptance

To secure a traditional bank loan or mortgage you will need to pass all set criteria, credit checks and due diligence set out by the lender. Typically, this can take week or even months for approvals to be made as generally it will be passed through many middle men. When you apply for a bridge loan from Bridge Direct, you are speaking directly with the decision maker, and there are no middle men.

This means Bridge Direct will guarantee and instant decision for all their bridge loan products and services. There are not set criteria, 1st and 2nd charges are accepted and more importantly, there are no credit checks performed. This means that even if you have bad or adverse credit, Bridge Direct may have a bridge loan solution for you.
Tags: Bridge Loans, Bridging Loans, Commercial Bridge Loans, Short term bridge loans

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