A bridging loan can be the ideal stopgap solution for almost any kind of temporary financial shortfall. In this brief introductory guide, we take a look at several key questions of importance to first-time bridging finance customers.
How Quick and Easy is Bridging Finance to Organise?
Bridging finance is issued primarily on the basis of two things – assets of value and security for the loan and evidence of a workable exit strategy (how you intend to repay the loan). With all essential documentation and evidence in place, bridging finance can be arranged in just a few working days. This makes it ideal for time-critical purchases and investment opportunities, where traditional loans and mortgages are not appropriate.
How Much Does Bridging Finance Cost?
Interest applies on a monthly basis, which can be repaid each month or ‘rolled up’ into the final loan balance at the end of the term. Monthly interest can be as low as 0.5% and the associated borrowing costs can be anything from 1% to 2% of the total value of the loan. All costs will be disclosed and discussed in full during your initial consultation.
How Quickly Does a Bridging Finance Need to Be Repaid?
Bridging finance can be issued over a term of anything from one month to two years, in accordance with the preferences of the borrower. As a general rule of thumb, bridging finance is more cost-effective when it is repaid early. There may also be the option of repaying the loan earlier than agreed to save money, without facing additional fees or penalties.
What Are the Different Types of Bridging Loans?
The two main types of bridging loans are open and closed loans. A closed bridging loan is an agreement that has a fixed repayment date, along with conclusive evidence of a viable exit strategy. With open bridging finance, no specific repayment date is agreed in advance and the applicant’s exit strategy may be more fluid/flexible. As open bridging loans are considered higher-risk on the part of the lender, they typically carry higher overall borrowing costs.
What Can Bridging Finance Be Used For?
Bridging loans can be used for almost any legal purpose, but there are some applications for bridging finance that are more common than others. Examples of these include auction property purchases, opting out of traditional property chains, funding light and heavy refurbishments, raising capital for new property developments, covering business cash flow shortages, helping new businesses get off the ground, and so on.
Can I Get a Bridging Loan with Poor Credit?
Yes, but you need to ensure you target the right lenders with your applications. Most bridging lenders are willing to consider applications from ‘subprime’ applicants if the rest of their application is suitably strong. However, any potential credit issues you have should be discussed with your lender during your initial consultation.
What Are the Benefits of a Bridging Loan?
Speed, simplicity, affordability, flexibility and accessibility are all key benefits of bridging finance. Particularly where urgent costs and time-critical purchase opportunities are concerned, bridging finance can be the ideal option.
What Are the Drawbacks of Bridging Finance?
As with all secured loans, you run the risk of your assets being repossessed by your lender, if you are unable to repay the facility as agreed. Likewise, bridging loans that exceed their agreed repayment deadlines may be subject to heavy fees and penalties – depending on the terms and conditions of your contract.
For more information on any of the above or to discuss the benefits of bridging loans in more detail, contact a member of the team at UK Bridging Loans for an obligation-free consultation.