Top 10 Myths about Bridging Loans Debunked

Top 10 Myths About Bridging Loans Debunked

There are many myths regarding bridging finance, all of which have a feasible explanation to install confidence when applying for a bridging loan.

Here are 10 common myths about bridging loans, along with explanations that debunk them:

  • Myth: Bridging loans are only for property developers
    Explanation: While bridging loans are commonly used by property developers, anyone can apply for a bridging loan, including individuals, entrepreneurs, and businesses.
  • Myth: Bridging loans are only for wealthy people
    Explanation: Bridging loans are not restricted to wealthy individuals. As long as the borrower meets the lender’s criteria and can demonstrate their ability to repay the loan, anyone can apply for a bridging loan.
  • Myth: Bridging loans are too expensive
    Explanation: Despite having higher interest rates than regular loans, bridging loans might still be a viable option for some borrowers due to their flexibility and convenience. In addition, rates are now more affordable due to lender competition.
  • Myth: Bridging loans are difficult to obtain
    Explanation: Despite the fact that bridging loan applications may be more stringent compared to applications for other types of finance, they are still rather simple to get if you have the proper paperwork and a sound repayment strategy.
  • Myth: Bridging loans have hidden fees and charges
    Explanation: Lenders have to be open and honest about the costs and fees related to the loan they are providing. Before signing the loan agreement, borrowers should make sure they have read it thoroughly.
  • Myth: Bridging loans takes too long to process
    Explanation: Bridging loans can be processed quickly, with some lenders offering funding in as little as 5 working days.
  • Myth: Bridging loans are only for short-term funding
    Explanation: For longer-term projects, bridging loans are appropriate because some lenders offer longer payback terms, despite the fact that they are normally used for short-term finance.
  • Myth: Bridging loans are only for buying property
    Explanation: Despite the fact that bridging loans can be used to buy real estate, they are also suitable for other things like consolidating debt, funding business endeavours, or covering unforeseen costs.
  • Myth: Bridging loans are too risky
    Explanation: Just like any loan, bridging loans include risks, but if the borrower is aware of these risks and has a clear repayment strategy, they can be a helpful financial instrument.
  • Myth: Bridging loans are only for those with perfect credit
    Explanation: While having good credit can help when applying for a bridging loan, it is not always a requirement. Some lenders will consider other factors, such as income and assets when assessing an applicant’s eligibility.

When short-term financing is required, bridging loans can be quite helpful in a number of circumstances.

Here are a few instances where bridging loans would be beneficial:

  • Property purchase: Bridging loans are commonly used to purchase property when the borrower needs to move quickly or is waiting for another property to sell. A bridging loan can provide the necessary funds to secure the property before the sale of the borrower’s current property is completed.
  • Property development: Bridging loans can provide the financing needed for property developers to purchase land or property and carry out renovations or refurbishments. The property can subsequently be sold or refinanced for a profit, allowing developers to pay off the bridge loan.
  • Business cash flow: Bridging loans can help businesses manage cash flow issues.
  • Debt consolidation: Bridging loans can be used to consolidate multiple debts into a single loan with a lower interest rate.