The Property Business So Just When is it the Correct Time to Utilise Bridging Finance?
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The Property Business So Just When is it the Correct Time to Utilise Bridging Finance?

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Bridging finance or bridging loans is becoming quite popular in the world of finance today. In fact, the industry grew from about £470 million in 2011 to hit £2.8 billion in 2017, making it one of the fastest growing sectors in UK’s financial industry.

Bridging loans allow you to raise financing for your time-based project with minimum hassle. But how can you decide when a bridging loan is your best bet?

This article provides a number of situations when you should consider a bridging loan.

What is a bridging loan?

Bridging loan or finance is a way to raise fast short-term capital for your project so that you don’t get to miss your deadline. It is commonly used by property investors and developers to access the quick cash needed to buy, refurbish, or move into a new property while waiting for the proceeds of their current property, or while looking for a more long-term source of financing.

Depending on the lender, Individuals and businesses can borrow as low as £50,000 and as high as £25 million with different rates and based on their unique situation.

One uniqueness of this financing system is that lenders tend to consider a bridging loan request even if the applicant has a less than ideal credit score, as they would likely be leveraging the value of one property against the value of the loan amount. This is a concession traditional loan-providers are unwilling to make.

When should you apply for a bridging loan?

In a perfect world, when you need to raise short-term capital for a project, you should be able to get the help you need from your bank or a regular loan provider. But this is not a perfect world. There are dozens of loopholes to jump through, tons of regulations to meet, and at the end of the day, your application may be disqualified for one small reason, or your loan approved after you have missed your project deadline.

But what is a good reason for getting a bridging loan?

  • If you need quick capital for your property business

If you are a property developer looking to buy or refurbish a property in order to sell for profit, but don’t have enough capital to successfully execute your project, bridging loans can be a great option for raising the cash you need.

One reason you should consider this form of finance in this situation is because bridging loans applications pull through quickly, usually between 2 to 4 weeks, compared to a mortgage application that can take several months to process.

Because you can access the funds you need quickly, you can start work on the property as soon as possible, finish up when you should, and put your property in the market on time.

  • If you are buying a new property

If you have your eye on a new property, and risk losing it because you haven’t sold your current one to raise the balance, a bridging loan can come in handy.

This type of loan allows you to raise the capital you need, buy the property you have your eyes on before someone else snatches it from under your nose, and then repay at a later date after selling your current property or raising the money from other sources.

Of course, you may want to consider applying for a mortgage, but unless you have the leisure of unlimited deadline, and you are certain your mortgage application will be hitch free, you may find it difficult to buy your dream property.

It is important to point out here, that the property market is not all bridging loans are good for. Investors and businesses have been using bridging loans to raise vital capital for business expansions, equipment purchasing, and a host of other reasons. You can find more information on where you can use bridging loans here alongside some great examples of bridging loans.

  • If you need to raise cash fast

There will come a time in the life of every business when you will need to raise cash quickly for one reason or another. For example, if you have a running mortgage, and have extra equity on your property, or if you have an existing bridging loan in the same circumstances, you can use a bridging loan to obtain the capital you need to finance an investment opportunity.

Wrapping up

As you can see, bridging loans could be just what you need if you are in any of the situations covered above.

So, whether you are running a current mortgage (known as a first charge), or you are starting on a clean sheet, a bridging loan is always secured against an existing property that you own, and like every other mortgage and loan system, you stand the risk of losing your property should you fail to meet up with your repayment obligations. The industry is regulated by the Financial Conduct Authority, so you can be sure of fair play.

Finally, it is important to say here that, bridging loans, because of the high-risk factor, are usually more expensive than traditional mortgages.

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