Looking for Bridging Finance? Here’s what you need to know
Bridging Finance is a well established lending product which is becoming more widespread and popular. It’s Bridging finance is a short-term loan designed to “bridge” the gap between the need for immediate funding and the availability of long-term finance. It’s commonly used in property transactions, where speed is crucial.
However, it can be used for many different reasons, and isn’t just restricted to people operating in the property market. Many business owners use bridging finance to manage short term cash requirements, or event driven lending, such as awaiting a tax reclaim where the loan can be repaid on receipt of the claim.
The key things a lender will consider are what the security is, and what their exit is. Due to the short term nature of the facility, lenders do not expect monthly capital repayments, instead working off a ‘balloon’ payment which will clear their facility in one go. In some cases, they will even roll up the interest so that the interest doesn’t have to be serviced monthly either.
Key Features:
- Short-Term: Typically ranges from a few weeks to a year.
- Fast Approval: Often quicker than traditional mortgages, making it ideal for urgent purchases.
- Flexible Uses: Can be used for various purposes, including property purchases, renovations, or even business funding.
Common Scenarios for Bridging Finance:
- Property Purchases: Buying a new property while waiting for the sale of an existing one.
- Renovations: Funding immediate renovations before refinancing with a longer-term mortgage.
- Auction Purchases: Securing funds quickly to complete a property purchase at auction.
- Business Opportunities: Taking advantage of time-sensitive investment opportunities.
Types of Bridging Loans:
- Open Bridging Loans: No fixed repayment date, suitable when the timeline for selling is uncertain.
- Closed Bridging Loans: Have a specific repayment date, ideal when the sale of a property is already in progress.
Advantages:
- Quick Access to Funds: Can be processed in days.
- Less Red Tape: Fewer regulations compared to traditional lenders.
- Tailored Solutions: Lenders often provide customized financing options based on individual needs.
Considerations:
- Higher Interest Rates: Generally more expensive than traditional loans due to the short-term nature.
- Repayment Risks: Failure to sell a property can lead to financial strain if the loan can’t be repaid on time.
- Fees: Be mindful of arrangement fees, valuation fees, and other costs.
Who Should Consider Bridging Finance?
- Property investors looking for quick turnaround opportunities.
- Homeowners needing fast access to funds for a new purchase.
- Businesses needing urgent cash flow solutions.
Bridging finance can be a valuable tool for those needing immediate funding solutions. However, it’s essential to fully understand the terms, costs, and potential risks involved before proceeding. At LendEdge, we have access to lenders who can work with borrowers across all credit profiles, and for most business purposes.
To find out more about how Bridging Finance can help your business, get in touch today.