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Bridging Loan Advice

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 4, 2023

Fact Checked By:
David Nicholson - Finance Editor

Bridging loan advice – All of the advice you need on bridging loans

Getting the right bridging loan advice is crucial for getting the best deal on bridging loans as well as ensuring that you are getting the right type of finance for your requirements.

If you are looking for bridging loan advice, click here to apply, and we can give you expert advice within a few hours.

In such cases, bridging loans are your best bet. These are short-term loans that bridge the gap until you get the money to pay it off. As a result, you get ready access to cash for immediate purposes.

These loans particularly come in handy for rushed property sales or purchasing land – developed or otherwise – at an auction. But, as with any financial instrument, not all bridging loans are made equal.

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Bridging Loan Advice: What Do You Need To Know About Bridging Loans?

Bridging loans, also known as bridging financeare short-term financial instruments used to get immediate funds for a variety of purposes. However, they are commonly used to purchase property for residential, commercial, industrial, and even agricultural construction or development.

It would be easy to compare bridging loans to normal property mortgages. But the nifty thing about this short term financing solution is that it is available even to those who would normally be turned down for a mortgage. This includes those with a low credit score and those with a less than ideal financial situation.

Another thing that differentiates bridging loans from other financing products is the need to present an exit strategy. An exit strategy is a plan which delineates how – and when – a borrower intends to repay the loan within a set period. Exit strategies may include the following:

  • Cashing in dividends or interest from previous investments
  • Funding the repayment with the proceeds from selling one’s old house, commercial or industrial property, or any other material asset of substantial worth.
  • Money received from a grant or inheritance
  • Money earned from a business transaction
  • Loan refinancing; or
  • Other expected cash flow from legal sources.
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Bridging Loan Advice On Exit Strategies

Many bridging finance lenders will only consider viable exit strategies when a potential borrower applies for a loan. Viability demands that the strategy should be set on sound financial grounds.

Indeed, lenders tend not to push through with financing if they discover serious concerns or issues regarding the current state of the borrower’s finances or if the strategy itself seems to have no merit. For example, a borrower with existing credit issues who is heavily in arrears may not be able to refinance a loan within six months.

However, if the strategy calls for selling a different property within the same time frame, a lender can look upon the application more favourably. Be sure, nevertheless, to pay the loan as soon as the funds to do so become available.

Remember that a bridging loan may entail offering security to your lender in the form of another property in your possession or other assets such as shares in a business, jewellery, vehicles, or watches.

Read more: Bridging loan advice

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Types Of Bridging Finance

To date, two types of bridging loans are commonly available in the UK: open bridging loans and closed bridging loans.

Open-ended or just open bridging loans usually involve a loan without a specific repayment date. Nevertheless, lenders will still demand a fairly solid exit strategy. This option is usually taken by those who are not sure when the funds for paying back the loan balance will be available. Note that this bridging loan has higher interest rates than closed bridging finance.

This high-interest rate is due mostly to the fact that open-ended bridge loans pose a greater risk for a bridging lender. They can also be unregulated bridging loans which isn’t a bad option and can be processed within 48 hours.

Closed bridging loans are used by those with a solid exit strategy that follows a repayment schedule. A bridging lender usually offers a lower interest rate for bridging loans. This is, so they feel more secure knowing that the loan will be repaid on time. There are plus points for this type of loan. Read our closed bridging loans guide for more information.

Some borrowers also add provisions to ensure the repayment of the loan just in case their primary strategy falls through or they fail to get the funds within a stipulated period. Here at Loan Corp we can offer overseas bridging finance if you want international funding.

Transactions Where Bridging Loans Can Come In Handy

Most people who take on bridging finance use it for the following purposes:

  • Purchasing property at an auction or requiring funds for an immediate transaction;
  • Downsizing or expanding a built property;
  • To avoid breaking a sales chain;
  • Investment purchases or buy-to-let;
  • Funds to purchase before or without an official sale;
  • Self-build or conversion projects;
  • Development loans on agricultural land;
  • Refurbishment loans or repurposing agricultural structures;
  • Transactions below the stated market value;
  • Any form of structural refurbishment or redevelopment;
  • Funds to facilitate a change in a property’s use or zoning from residential to commercial/industrial or vice versa;
  • Purchase of commercial or industrial property;
  • Repayment of another bridge loan;
  • Payment for inheritance taxes;
  • Lease extensions;
  • Multi-asset lending; and
  • Loans to purchase land with or without planning permission
  • If you have bad credit, you can get a bridging loan with bad credit from many lenders

A Caveat On Using Bridging Finance For An Auction Purchase

Converging finance often enables property buyers to put down the initial deposit demanded upon a successful bid. Afterwards, however, the rest of the balance must be paid within a period of 28 days, as is the case with auction finance requirements.

This is one of the reasons why bridging finance appeals to any buyer who purchases land with bridging loans at auctions: any other form of finance, such as regular mortgages and similar property loans, does take time before any funds are released.

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Bridging Loan Advice: Key Benefits Of Bridging Finance

  • Payout comes fast – Notably, you get the money you need faster – almost immediately in some cases. This comes in handy when you win an auction bid. Or, you can put a 10 per cent down payment or respond to emergency transactions that call for ready cash.
  • You can get one for anything – Most people use bridging loans for matters involving property or development financing. Yet there are numerous legal uses for such financing. You can refinance another loan or pay for different transactions of an urgent nature. Bridging finance ensures that you have money in your pocket for it.
  • Applying for one is quick and easy – Applying for a bridging loan is much simpler than any other loan. Applications are judged simply on their own merits. People who wouldn’t normally qualify for mortgages and other loans can apply. Most lenders don’t bother looking at credit scores or even proof of income.
  • Rates are reasonable, and interest rates are significantly lower – These loans were specifically designed to be accessible. They cater to those who need a large sum of money in a short period of time. Over 200 lending agencies are currently offering bridging loans; rates are competitive. Be sure, however, to check with lenders before signing off on anything;
  • You can use different forms of security – Lenders aren’t picky when it comes to assets you use for security. Some even allow houses in a certain state of disrepair or structures that aren’t in the ideal physical state as security.

Bridging Loan Advice: Possible Alternatives To Bridging Loans

While we have established that anyone can afford bridging loans, this doesn’t mean it’s a solution for everyone.

Indeed, many people who consider bridging loans also have a roster of potential alternatives when it comes to financing. At this point, the alternative financing instrument a borrower eventually opts for is entirely dependent on their specific requirements.

For the most part, banks, brokerages, and other lending agencies may offer you conventional mortgages for residential and commercial properties; secured loans; commercial loans specific to business growth and expansion, development finance for industrial and agricultural purposes; and equity release.

However, the key disadvantage of all these options is that it does take time before funds are released. This could pose a problem in instances where one needs a large sum of ready money in hand, so bridging loans would still be the best possible option.

In any case, don’t be afraid to ask questions before making decisions on such financial products. Ahead of any planned purchase, properly scrutinise any and all loans and mortgages available to you.

That said, you would do well to work with a reputable lending broker with access to some of the UK’s best independent lenders and financial institutions. This allows you to shop around for the most appropriate products and services for your needs.

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Tips Before Applying For Bridging Loans

Below are some practical pointers to ensure you are ready to apply for a bridging loan.

Look Over Your Finances

Bridging loans are one of the most widely available financial instruments. Lenders don’t usually check credit scores or ask for proof of income. However, they will expect you to be able to pay back the loan within the agreed-upon time period.

In this case, look over your financial records and see what needs work. Why is this important? When lenders know your finances are in good shape, they can release funds faster and knowing that you don’t pose much risk, they may charge lower fees and interest rates.

Also, if your exit strategy depends on selling another asset within the stated amount of time, be sure to follow up on – and follow through with – your buyer.

As bridging loan advice, go over your budget seriously. What can you afford when it comes to property and/or the cost of either construction or refurbishment?

Again, even with more relaxed guidelines, lenders will determine how much to loan you based on your capacity to pay and the security you are prepared to line up for your loan.

Shop Around

Just because a lender is within close physical proximity to you doesn’t mean that you need to stick to them. Go online, make calls, and go over listings to see which lenders or lending agencies offer the most reasonable rates and are best qualified for the services you need.

Read more: View a bridging loan example

Compare Bridging Loans Among Multiple Lenders

About the previous item, different bridging finance lenders offer different rates. For example, institutional lenders like banks and credit unions may offer a cheaper repayment package than the more bespoke loan packages offered by independents and online lenders.

Pay attention to fees, interest and service rates, and repayment terms.

Always Read The Fine Print

We cannot emphasise this enough: be sure to read any and all paperwork before you sign off on anything.

Be sure to comb through the documents to see if any hidden charges or penalties may come back to haunt you in the long run. It’s important to compare bridging loans to ensure you get the best rates.

Before Anything Else, Go Over The Criteria Before Filing Your Application For A Bridge Loan

Again, lenders and lending agencies may have different bridging finance criteria for those applying for a bridge loan. However, in the UK, any company offering a short-term bridge loan will ask about the following to work out the bridging mortgage rates you will pay:

  • The size of the loan, and this can run between £100,000 to £1 billion, depending on the lender;
  • The loan duration or term which, in most cases, can be as short as a day to twelve months, though some lenders can stretch the term up to eighteen months;
  • Primary and secondary security against the bridge loan in the form of alternative property or material assets of comparable value;
  • Property type, location, and condition;
  • Borrower’s financial status and credit scores (often optional); and
  • Exit strategy.

Try our bridging loan calculator to get indicative rates on your bridging loan requirements, or contact us here to apply online; we aim to get indicative rates to you within 2 hours.

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