Bridging finance or a bridge loan is a short-term finance option or facility that ‘bridges’ the gap before a longer term financing option is available. Bridging finance usually applies to property and/or land purchases or transactions.
Depending on your circumstances (i.e. Speed of funds required, property value, location, etc.), the arranged lender will make an offer to lend you money in exchange for taking a charge on your property and a fixed monthly interest amount payable by the borrower – It is essentially the same process as any mortgage lender – however due to the increase in flexibility, speed and bespoke lending criteria of bridging finance lenders and short-term characteristic of such finance a higher rate of interest is charged and terms tend to range from 1 month to 36 months.
There are hundreds of bridging finance lenders/ short-term lenders – just like mortgage lenders – each specialising to specific sectors of the market. In the bridging market lenders range from the mainstream bridging finance lenders to lenders which specialise in particular markets and niches.
This really depends on the circumstances in which it is being asked. Bridging loans are designed to provide an immediate solution and so tend to complete quickly and typically have less onerous borrower underwriting criteria, this speed and convenience comes at a price.
Decisions are not made on rigid criteria, computers or solely based on credit scores. Bridging loan lenders look at a variety of factors and take into consideration various circumstances involved. Each case is assessed on its own individual merit.
The major factor of a bridge loan is the speed with which they can be arranged and less about the cost. That being said, we realise that cost is also key and that’s why we secure the best available rates from a range of lenders. Coupled with the fact the bridging loans are becoming more mainstream means that the increased competition in the market has lowered rates considerably.
Bridging finance is designed to be short term and its major characteristic is focused on speed with which the loans can be arranged. In some cases, bridging loans of several million pounds have been arranged within less than a 72 hour period.
A bridging loan can prove to be expensive if used as a substitute for longer term funding, mostly due to a lack of an exit strategy. In addition the annual interest rate can be off-putting to the inexperienced individual however bridge loans are rarely held for a year. This is precisely the reason rates of bridge loans are quoted on a monthly basis.
In a nutshell, bridging finance is a quick, convenient and flexible way of raising large amounts of money intended for a short term period for a variety of reasons. However it can be costly if used as a longer term product.
Bridge loans can be used for a range of purposes from the usual property investment, buy-to-let and refurbishment to the more exceptional commercial development and Company IPO or acquisition. More Typically Bridge Loans are used for:
*in rare circumstances if additional fees are incurred we will ensure these are clearly stated to our clients