Bridging Loan Uses
There are several instances where the use of a bridging loan can provide a positive benefit for the borrower. Unlike many other types of finances, which are typically intended to be paid back over an extended period, bridging loans are designed as short-term products and they often represent the cheapest method of financing a property purchase or development project.
When is a bridging loan useful?
Bridging loans can be arranged at very short notice and with flexible borrowing terms. In many cases, applications are approved in principle with no need for extensive background and credit checks and, as long as you can provide the necessary security, you stand an excellent chance of being able to access to the funds you require. Another advantage of bridging finance is that the lender will consider using almost any type of property as security.
Common Uses of Bridging Loans
Fast Property Purchases
If a property comes along at a bargain price and your existing funds are tied up in other property investments then a bridging loan can be used to finance a quick purchase. The monies raised to acquire the new property will be secured against the equity in the properties you already own. You then have the option of selling the property on for a quick profit and paying back the bridging loan, or you may wish to develop the property further.
Buying Property at an Auction
When you place a winning bid on a property at auction, a same day deposit of 10% is required to secure the bid. You will then have 28 days to find the rest of the money. This is ample time to arrange a bridging loan solution, which you can then use to complete purchase. In some instances, you may be required to pay off the outstanding balance sooner. As leading bridging providers, we can work quickly to ensure the required funds are released on time.
When a lender repossesses a property in order to settle an outstanding mortgage balance, they will usually sell it off cheaply in order to achieve a quick sale. This may or may not be enough to cover the full debt amount – and it could mean the owner losing out on considerable equity. A bridging loan can be used to pay off a secured loan such as a mortgage in full, whilst giving the original owner complete control over the sale. The property can then be sold at a profit, rather than a loss, in order to pay back the bridging loan whilst enabling the owner to retain any remaining equity.
Cash Flow Problems
There are many times when a business owner may be faced with cash flow problems. If a customer is late to settle an account, or if the bank calls in an overdraft facility at a time when you are unprepared, you may find yourself struggling to make ends meet. In these situations, you can use a bridging loan to address the situation – provided the problem is short-term in nature.
Bridging loans are the ideal solution for those in need of property development finance. The bridging loan can be used to fund a project with the money paid back once the work is completed and the property has been resold or refinanced.
Probate and Inheritance Tax Problems
It can often be necessary to release charges on property early to pay off inheritance tax and other bills following bereavement. Bridging loans are a useful type of short-term finance in these situations and the loan amount, plus any additional fees, can be settled once the equity has been released from the inherited real estate.
Purchasing Property Below Market Value
You may be looking to buy a property that is being sold below market value yet found yourself unable to obtain funds secured against the full market value of the property. In these situations, a bridging lender will undoubtedly be able to help, provided there is a valid reason for the low purchase price, such as the owner looking for a quick sale.
Property Conversion, Renovation and Refurbishment
If you are looking to convert, restore or renovate a property that is in a poor state of condition, you may find it difficult to raise finance from a traditional lender using the property as security. Bridging loans can be secured against any type of property in any kind of condition, with each application assessed on its own merits. Perhaps you are looking to add a kitchen or bathroom to a property so you can rent it out afterwards. A bridging loan can be used to cover the cost of short-term renovation works that are required before the owner can refinance the property or sell for profit.
Keeping Your Place in a Sale Chain
Many people will finance the purchase of a new property using the equity tied up in existing real estate that they own. However, if you are unable to sell your property in time, or if a prospective buyer lets you down or changes their mind at the last minute, you may find yourself missing out on the new purchase. In this scenario, a bridging loan can be secured against your existing property in order to effectively bridge the gap so that you can keep your place in the sale chain.
Advantages of Bridging Finance
Bridging Loans Are Quick To Arrange
It can sometimes take weeks or months for a borrower to gain access to a considerable sum of money, and this is particularly true in the case of business loans and buy-to-let, residential or commercial mortgages. If you need to borrow a large amount of cash and you need it fast, then a bridging loan is often the only serious option. Provided you have sufficient equity in the property, or number of properties, that you are using as security then the funds that you require can be transferred to your account sometimes in less than 48 hours.
Bridging Finance Is Very Flexible
Unlike most other finance providers, bridging lenders are very flexible in terms of accommodating the needs of their clients. They are not overly concerned with a customer’s credit rating, whether or not they are self-employed or monthly income. Moreover, they are typically only interested in a viable exit strategy and the security you are offering. As long as you can pay the money back, even if things go wrong, your chances of approval are excellent.
Bridging Loans Can Be Secured Against Any Property Type
A bridging lender will consider using any type of property or real estate as security including residential property such as a house or flat, commercial properties such as offices and warehouse facilities, development land or building plots and even farms or sports complexes. In addition to this, a bridging loan provider will also consider both freehold and leasehold property – even if the lease only has a short time remaining.
Properties in a State of Neglect
Bridging loans can also be secured against real estate that is in urgent need of repair of restoration. If a property is derelict or in a poor condition then most mortgage providers will deem it completely unacceptable for the purposes of securing a loan. This is another advantage that bridging loans posses over other types of finance.
Unusual Construction or Non Standard Properties
The vast majority of mortgage lenders will only consider offering finance secured against properties that are categorised as standard construction. Non standard or unusual construction properties include buildings constructed from materials such as concrete, wood, corrugated iron or steel frames and these are often exceptionally difficult to obtain a mortgage on as they are considered less valuable than brick buildings with tiled roofs.
Multiple Properties as Security
Bridging finance can easily be raised using two or more properties as security, either on a first or second charge basis – or quite possibly using a combination of charges. Provided there is equity in the additional properties, a borrower can use that money to raise the funds required for another purchase or property development project.