£26K to £25m
Bridging Finance Solutions For Your Property Portfolio
For those involved in the property business, be they property developers, investors or landlords, there is no shortage of available funding options that allow you to finance your next project.
Mortgages are the product that most people would think of when it comes to property related purchases, but they are not suitable in many situations.
For example, if the property you wish to purchase is for refurbishment and does not have a kitchen or bathroom, then you could not fund it via a mortgage. It would be classed as uninhabitable.
Mortgages also take a long time to arrange and would not be suitable for situations where you needed to find funds quickly to complete a sale. Houses bought at auction need to be fully paid for within 28 days, a timescale that is next to impossible for any mortgage provider to accommodate.
Bridging finance solutions are useful in these cases and are a popular form of loan for property investments, as they are quick to arrange and have much less stringent criteria on what property they can be used with.
Technically, a bridging loan is simply a short-term loan, usually lasting between 3 and 24 months, and that is secured on an asset. They can be used for purchases that are not property related, but this is the use for which they are best known.
They are extensively used to cover the period between one loan and another - literally ‘bridging the gap’, allowing buyers to secure property quickly. You can apply for a bridging loan to pay for a property in the short term, whilst waiting for a commercial mortgage application to be approved.
Examples Where Bridging Finance Can Help
A bridging loan can be used to pay for all types of property buying, building and development costs. Bridging finance solutions would be appropriate in the following hypothetical examples:
- A property developer who has completed a project in full might use a bridging loan to consolidate their existing lines of credit, so that their repayments are structured into one affordable payment, whilst they await completion of the property sale.
- A landlord who finds an impressive investment property might consider bridge funding to allow them to secure the property whilst they get other finance approved, ensuring that another landlord doesn’t swoop in and buy the property in the meantime.
- A property investor looking to convert a property from commercial to residential use could use a short term bridge loan to generate some business cash flow whilst they wait for planning permission to be approved. On approval of planning they will then be able to apply for a longer term developer loan.
- A buyer that is stuck in a mortgage chain, in which the owner of the property they want to purchase is fed up with waiting for their buyer to complete, could take out a bridging loan. This would enable them to provide the funds, which they could then repay by obtaining a mortgage.
Due to their flexibility, bridging loans can be used in most scenarios that require short term lending where security is available.
If you wish to know whether your project is a good candidate for bridge loan financing, then please get in touch.
What Do You Need To Apply For A Bridging Loan?
Whilst a bridge loan is far quicker and easier to access than more traditional loans, the process is still thorough enough that the lender can be reassured that the project is financially viable and within their set criteria.
In the majority of cases individuals and companies who apply for a bridging loan will not have to provide any proof of income or turnover. Bridging finance solutions offer the lender reassurance as they have the property as security which they will use in the case of non-payment.
You need to be able to demonstrate to the lender how you will pay the loan back. This is called your “exit strategy”. You may have used a bridging loan to buy a property at auction, and in this case your exit may be to obtain a mortgage and use the funds from this to repay the bridging provider.
The more information you have to demonstrate that your exit strategy will succeed and is a sound investment, the more likely you are to be accepted for the loan. This is why it is helpful in this instance to get a survey done on the property and provide valuations.
For businesses wanting to borrow in order to expand their business or make investments, providing business plans, financial projections and company histories will help lenders to make their decision.
A credit check will also be performed to assess your past financial conduct. Having a less than spotless record is usually not a major issue with most lenders though, as since they have the property as security they can be confident they will not be out of pocket if a problem arises.
How Much Is A Bridging Loan
As with any type of borrowing, a short term bridge loan should only be considered if you are sure that you can pay it back.
Interest on bridge funding is charged on a daily rather than monthly basis, meaning that you only pay interest on the number of days you are still using the loan. However, interest rates on these loans are typically higher than on long-term lending.
Interest can add up fast if your exit strategy fails. Common exit strategies for this type of loan can include:
- Another, longer-term form of development finance
- Mortgaging of completed properties or units
- The sale of the property
Some lenders provide the option to ‘roll-up’ interest into the total amount of the loan, which is then repaid at the end of the loan term.
This is a good option for those who need to fund building costs and are looking for lower repayments during the loan term, and is a requirement of a residential bridge loan. However, this does mean that the cost of the loan is more expensive for you, in the long run.
To help you figure out the cost of a bridging loan then please use our handy bridging loan calculator here.
Bridging Finance Solutions That Are Tailored To You
We understand that bridging finance isn’t necessarily easy to understand, and the range of options available can be intimidating to those not well versed with property finance. That’s why we offer a dedicated comparison service, working with one of the UK’s leading bridging finance specialists in order to help you to find the most competitive funding options available today.
We work with individuals, limited companies, SVP limited companies and charities to arrange bridging loans, refurbishment finance and development finance.
The shared expertise and skill of our team ensures that you will be able to understand and afford the product you choose, and we’ll try to ensure that you get a firm response to your application within 24 hours of applying.
