Waiting for completion on a sale before you can start your next project can be frustrating. Bridging the gap between a sale and next purchase with Bridging Finance can get you moving faster than if you had to wait for a sale. Many developers use bridging finance when they know the properties they have will sell off quickly.
How can Bridging Loans be used?
Bridging loans are secured loans – meaning that you will need to have an asset in the form of a property or land to guarantee against the loan. Once secured, the loan can be used for a variety of purchases including:
- To secure a property at an auction
- Payment for a deposit on a new property or to buy it outright
- Developing new property
- Divorce settlements
- Re-bridging a loan
- Renovating, converting or refurbishing a property to sell
- Short-term cash flow problems
Types of Bridging Loan
Bridging loans are a short-term option with terms usually available up to three years depending on the type of bridging loan you apply for:
Open bridging loan: With terms up to 36 months, an open bridging loan would come in useful if you are not certain when funds will be available to pay off the loan. For example, if you were waiting for your property refurbishment to complete before you can sell it but require funds for a new property then an open loan will take the pressure off you for having to repay the loan quickly as the terms are a lot more flexible than with closed bridging loans.
Closed bridging loan – This would be suitable for if you know exactly when you will have funds to repay the loan – this is a shorter time-frame option with terms usually up to a few weeks or months. For example, if you are nearing completion on a sale and you know exactly when funds are expected to within a couple of weeks. Closed loans usually involve lower interest rates than open loans due them being less flexible.
For either type of Bridging loan, you would need an exit route – a plan for repaying the finance.
What’s the first step in arranging a Bridging Loan?
Speak to Compariqo. We have partnered with one of the largest business finance companies in the UK. Having established relationships with over 80 recognised lenders, they have in-depth knowledge of:
- Which lenders have the best appetites
- How to work around a complicated situation
- What lenders are looking for in terms of security against the loan
- How to present an application to a lender with the best chances of it being accepted.
Have an idea of how much money you will want to borrow.
Be prepared with how much your property or other asset (such as land) is worth.
Have an idea of how long you will need to repay the loan
Have an idea of whether you will be needing a first or a second charge – if you already have a mortgage on your property, you will need the permission of your current lender to apply for another loan against the property.
What’s the difference between a first and second charge?
Lenders will always need security against a bridging loan to ensure that if a borrower cannot not afford the repayments, then the security can be used to repay the loan.
Charges refer to the order in which loans need to be repaid. If you have a property that is mortgage free, a lender would place a first charge on the property meaning that the loan is first priority for repayment.
If you have a property that is mortgaged, then the bridging finance lender would place a second charge on the property with the mortgage lender’s permission. This means that the mortgage (first charge) would be repaid before the bridging loan (second charge).
If you have multiple properties, they can all be used as security as there is no limit on the amount of charges that can be applied on a bridging loan.
What fees are involved in a bridging loan?
As with most types of loans, there are fees which could involve:
- Arrangement fees
- Valuation fees
- Exit fees (for early repayment although not all lenders charge these)
- Administration fees
Our finance partners will explain all fees from the outset so there’s no nasty surprises along the way and you know exactly what you are paying and when. Plus, a bad credit rating will not affect your ability to get bridging finance, – as long as you have enough assets to cover the cost of the loan, lenders will not be put off.
For fast access to bridging finance with from 0.44%, speak to Compariqo about what you need, and we’ll start the ball rolling