Bridging Loan

A bridging loan is a short-term form of finance. It is a loan designed to support a business or an individual with their need for funds. An alternative to a traditional bank loan or mortgage, the idea behind the loan is to bridge the gap between the need for finance and the main source of repayment becoming available.

In most cases, the loan will be made to purchase one real estate property pending the sale of another, but these loans are flexible and may be used for other purposes.

Bridging lenders will always want security to cover the bridging loan – in most cases (but not all) it will be the same property which is sold to repay the loan.

What is a bridging loan?

Very different to a standard bank loan, a bridging loan is repaid by the prospective sale of an asset – usually a property. A bridging loan will usually run for anything between 1-24 months. In some cases interest is covered by the borrower as it accrues or it may be “rolled over” and repaid at the end of the loan from the property sale.

Bridging loans are designed to help people complete the purchase of a property prior to the sale of their existing property. If a business needs to move into a commercial property and wish to fund their new purchase with a sale of their own premises, a bridging loan would allow them to purchase the new property without first selling their current premises – minimising disruption to trading.

How do they work?

Bridging loans will differ in their terms, but the majority of lenders normally offer repayments for anywhere between 1-24 months. The lender will always want to identify a clear exit route (eg the sale or long-term refinance of a property). The length of the loan will be dependent on what the borrower needs and what is acceptable to the lender.

The rate of interest will vary depending on the size and length of the loan. Typically, interest on a bridging loan can be covered as it accrues or rolled over and repaid when the loan is repaid. Lenders will require security as collateral.

At the end of a bridging loan, the funds received from the sale of your assets will automatically go to the lender along with any exit fee and accrued interest.

Common uses for bridging loans

Most commonly, bridging loans are used by property developers, landlords and investors, addressing common situations such as property developments or buy-to-let purchases. This is short-term borrowing usually either repaid from the sale of a property or long-term refinancing.

Apart from property purchases bridging loans can be used for a variety of business purposes such as finance for meeting tight deadlines, purchasing un-mortgageable properties, new-builds and conversions as well as covering short-term cash flow needs. The common denominator is that the finance is short term and there is a clear exit route (ie source of repayment).

As high street lenders and building societies have become stricter regarding their own lending in recent years, there has been an increase in the number of bridging lenders in the market.

With the increase of lenders available, there are now many more options and variety when it comes to seeking a bridging loan. However, because of their high availability, bridging loans are often used when there could be an alternative, more appropriate source of finance available.

Bridging finance is not a replacement for long-term loans and is often a more expensive option. A bridging loan should only be used if you have a strong financial situation and a clear exit strategy.

Why should I use a bridging loan?

A bridging loan can be a fantastic source of additional funding providing the extra cash you need to help get a property purchase over the line.

• Short-term finance designed to be repaid in full once the longer-term finance arrives
• Can be easier to arrange than other forms of traditional finance
• Will give you additional breathing space to sell an existing property or for longer-term finance
• The market for bridging loans is continuing to be competitive which is driving interest rates down.

What can we do for you?

If you are waiting on the sale of assets to move forward the purchase of a residential or commercial property, a bridging loan could be the ideal solution to push that process to completion.

With our experience and expertise in the industry, we are ideally placed to help secure an excellent bridging facility for you. We work closely with 50 of the top blue-chip funders, gaining access to exclusive rates and deals. We can also explore other types of funding which may be more appropriate and better value for your circumstances.

We work nationwide and provide a free consultation, with a no-obligation quote. If you’re curious about what we can offer you contact us now.