What is a bridging loan?
Put simply, it is a short term loan which provides quick funding with a minimum of formalities for either individual or commercial purposes. In essence, it is ‘bridging’ a gap in your finances and that is why it is used in the short-term. It is a quick solution which can be approved (subject to checks on the borrower’s credit history) and released easily as there is flexible lending criteria without the extensive checks expected with other types of finance. They are usually available for 6-12 month periods, but can be offered for longer. As can be expected, as a result of the short period of time they cover, the interest payable is low and affordable, yet more expensive than traditional forms of finance. It can be used for a number of purposes such as:
- Quick cash in the case of buying a new property before the old one is sold
- Below market value purchases
- In cases of refurbishment or re-development
- Conversion of a property
- To carry out essential repairs so that a property becomes eligible for mortgage lending
- Chain breaking
- Settling tax liabilities
- Auction finance
- Probate cases
- To cover mortgage delays
- To provide a cash injection into a business
And the list goes on. What is important to note is the key requirements for such a loan. A bridging loan requires something to be held on a charge as security if the loan is not repaid-usually the equity in a property or land is used as security. You will be happy to know that this charge will be automatically removed once the loan is re-paid. Bridging loans can be secured against the following key options:
- Residential properties
- Mixed use properties
- Property in a poor condition
- Care homes
- Guest houses
WHAT WE CAN DO FOR YOU
There are many advantages ….
- They provide you with much needed funding within a quick period-typical processing time is between 3-5 working days from the time a first enquiry is made. Applications can be completed within 2 weeks.
- Many forms of bridging loan do not have any redemption fees
- A poor credit history is often not taken into account by lenders
- Interest rate charges can be paid monthly or when the loan is redeemed –this will be up to you and your circumstances will be taken into onsideration
- when deciding this. Rates are competitive and now start at 0.44% per month.
- Flexibility-these can be repaid early and any unused interest is rebated which again means that you will save money!
- Obtaining a bridging loan will give you the opportunity to lend against unmortgageable properties which you would otherwise not be able to borrow against.
There are also some disadvantages to consider…..
- Lenders may impose some hidden charges, so we at Finbud will help you to ensure you are fully aware of all charges upfront. Apart from a lender arrangement fee and the interest rate charge that you will need to pay, there can be an additional ‘application’ or ‘inspection’ fee. These additional fees can add up, so it is important you are aware of them at the outset.
- If there is a problem with your exit route-if the planned exit route fails and you are unable to repay your loan, then this may cause you problems as the end of the term comes close. If no solution is found, it may result in your property and credit profile being at serious risk.
It is important to remember that bridging loans are intended only as a short term finance option and is not a long term solution. You, as the borrower, must bear in mind that the monthly interest on a bridging loan can be higher than other types of finance. It is vital to have an exit strategy because at the end of the term, the bridging loan will need to be paid back.
HOW LONG DOES A BRIDGING LOAN USUALLY LAST?
As you can see most bridging loans last on average for up to 12-24 months but they can also be taken for a longer period
of time…even up to 36 months in some cases! Yet what needs to be clarified from the outset is how you
aim to pay this loan off as the lender will want to see a realistic plan to convince them
that this loan will be paid off.
The Benefits of Obtaining a Bridging Loan through Finbud, Why use us?
Finbud will work closely with you in order to ensure that we obtain the bridging loan that best matches your requirements. We can provide loans from £50,000 upwards with no maximum loan limit and depending on the type of bridging loan, we can fund loans for up to 36 months. However, please note that regulated loans have a maximum term of 12 months because they are regulated by the Financial Conduct Authority (FCA).
Even where you may have a poor credit history, you may still be able to obtain a bridging loan although the interest rate charges may be more.
Finbud will not require proof of income for unregulated applications where interest payments are rolled up or deducted from the loan. We are also able to provide you with two options- working with lenders who can add the interest onto the loan, so that you do not have to make a monthly payment or if you choose you can make a monthly payment. There are lenders who will satisfy either of these requirements.
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