Bridging Loans: Unlocking Opportunities
Using a bridging loan
Bridging loans, often referred to as bridging finance, are versatile financial tools designed to address short-term funding needs, providing a swift and flexible solution for individuals and businesses. These loans “bridge” the gap between the need for immediate capital and the eventual availability of long-term financing or sale of the security.
Key Uses of Bridging Loans:
- Property Transactions: Bridging loans excel in property-related scenarios, facilitating quick purchases or bridging the gap during property sales. Whether you’re securing a new property investment or awaiting the finalisation of a project, bridging loans offer rapid access to funds.
- Downsizing and Upsizing: Individuals looking to downsize or upsize their homes can benefit from bridging loans. These loans enable a smoother transition, allowing borrowers to move faster without waiting for the sale of their existing property.
- Auction Purchases: Bridging loans are popular among buyers at property auctions. The fast-paced nature of auctions requires immediate financial commitment, and bridging loans provide the necessary funds to secure properties under competitive conditions.
- Business Ventures: Entrepreneurs often turn to bridging finance to capitalise on time-sensitive business opportunities. Whether it’s seizing a lucrative deal, covering operational costs, or managing cash flow gaps, bridging loans offer agility.
- Property Development: Property developers frequently utilise bridging loans to kickstart projects. These loans provide the initial capital needed for acquisitions, construction, or renovations, with the intention of refinancing once the project reaches a more stable phase.
In essence, bridging loans are a dynamic financial tool, offering speed and flexibility for various needs. As a reliable solution for short-term financial gaps, they empower borrowers to navigate challenges and capitalize on opportunities without delay. If you’re seeking swift and efficient financing, consider the strategic advantages of a bridging loan.
Bridging Loan – Frequently Asked Questions.
What is a bridging loan?
A bridging loan is a short-term loan that can be used to bridge the gap between buying a new property and selling an existing one.
It can also be used to purchase a property at auction, where the buyer needs to pay immediately but has not yet sold their current property, purchase a property for refurbishment or raise cash for business purposes.
The bridging loan is secured against an asset, usually a property, and can be arranged within days
How does a bridging loan work?
There are two types of bridging loans: closed and open. With a closed loan, there is a fixed repayment date, which is usually given if the buyer has exchanged contracts but is waiting for the property sale to complete. With an open loan, there is no fixed repayment date, but the borrower is expected to pay it off within one or two years.
The lender will want to see evidence of a clear repayment strategy, such as using equity from a property sale or remortgaging the property.
What are first and second-charge bridging loans?
When you take out a bridging loan, a ‘charge’ will be placed on your property. This is a legal agreement which prioritises which lenders will be repaid first should you fail to repay your loans. Both a first and second charge bridging loan (and sometimes even a third charge) take your property as security in case you default on repayments. Typically, if you still have a mortgage on your property, the bridging loan will be a second charge loan, meaning that if you failed to meet repayments and the property was sold to pay off your debts, the mortgage would be paid off first
How much can you borrow with a bridging loan?
It is possible to borrow varying sums of money, ranging from £25,001 to hundreds of millions of pounds. The limits are really set by the value of the property available as security (which can be your existing portfolio as well as what you are purchasing) and your ability to meet your exit plan.
What are the pros and cons of a bridging loan?
Pros include quick access to funds, flexible repayment options, and the ability to secure a property quickly.
Cons include high-interest rates, high fees, and the risk of losing your asset if you cannot repay the loan
How many bridging lenders are there?
The Acorn.finance lending panel includes well over 100 bridging lenders, each having their own lending criteria, specialisation and uses. Your expert broker will work with you to ensure that you get the funding you need, when you need it!