Closed and Open Bridging Loans – What’s the Difference?
It’s usually not until you make the decision to apply for a bridging loan that you discover just how many different types of bridging loans there are. Commercial loans, residential loans, second charge bridging loans and so on. Not to mention, the often misunderstood concept of ‘open’ and ‘closed’ bridging loans.
Nevertheless, it is important to understand the key differences between the two, if looking to take out a bridging loan for absolutely any purpose.
In the simplest of terms, a closed bridging loan indicates a transaction where the borrower establishes a planned and defined exit strategy, before the loan has even been taken out. Or to put it another way, the borrower knows exactly when and how the funds will become available to repay the balance of the loan, in accordance with the requirements established during the application. In most instances, bridging lenders insist on knowing exactly when and how the balance of the loan will be repaid – hence most bridging loans are considered closed bridges.
By contrast, some lenders are happy to offer somewhat more accommodating loans in the form of open bridging loans. In this instance, the borrower is not able to provide a concrete repayment roadmap – usually because the funds are required at very short demand. As such, they may have had insufficient time to think carefully about the specifics of the repayment aspect.
In terms of when open bridging loans are provided, it could be that the borrower already has some kind of strong working relationship with the lender, or that their track record in general is one of flawless reliability. It could also be that the borrower has every intention of paying back the bridging loan when the property being financed is subsequently sold. They cannot provide an exact date and comprehensive overview of their repayment plans, but nonetheless have a viable exit strategy. If the lender is confident that the borrower can repay the loan successfully, they may be willing to offer an open bridging loan.
Alternative Bridging Options
If bridging loans in general don’t represent an appealing or viable option, there are alternatives available. Examples including short-term asset finance, standard overdraft facilities and so on.
In the case of short-term asset finance, it’s essentially a case of arranging secured loans by providing the required collateral. From jewellery to luxury cars to paintings to property to business assets and so on, just as long as you have assets to the required loan value, it is relatively easy to gain access to the funding you require. The application process can be comparatively simple and interest rates/borrowing costs are typically flexible – depending on the lender you go to.
As for overdrafts and use of general personal credit facilities, it isn’t generally recommended to fund major projects or purchases this way. The reason being that as they’re not specifically designed for these kinds of purposes, they have a tendency to be both restrictive and expensive.
If looking to explore the various options available to you, it’s advisable to speak to an independent broker with a wide-reaching network of mainstream and independent lenders alike.
For more information on any aspect of conventional or alternative financial products, get in touch with the Bridgingloans.co.uk customer support team today.