One of the key advantages of bridging loans over alternative forms of lending, is the speed in which these loans can be arranged from the customer’s initial enquiry. We have had cases come through where the client needs very fast bridging finance for a variety of different loan purposes and we have been able to do it, sometimes as quickly as 48 hours from the initial enquiry. Most cases can take longer and can be a few weeks if complex, that’s why it’s important to know more before deciding if short term finance is right for you.
Why is there fast bridging finance?
The Bridging Loan market was originally designed as a short term funding option when customers need to raise finance to “bridge” a gap before a debt became due.
There are various reasons why a customer would need this type of finance fast:
- Perhaps the client is a homeowner looking to downsize so they need the bridging finance to cover the costs of buying a new property before selling their current one or
- Perhaps the homeowner is currently living alone and is looking to move in with a partner so wants to sell the property he or she currently lives in alone – however, before selling the property the homeowner decides to do some renovations to increase its market value which a fast bridging loan would enable them to do.
- Maybe a property developer is looking for auction bridging. Here they would need a fast bridging loan so they can purchase and renovate the property, using the profit from its sale to cover the costs of the loan.
As well as being used for property transactions, fast bridging loans can be raised as a short term loan for a variety of different loan purposes. Including:
- To buy undervalued stock and increase profits
- To pay an urgent tax bill
- To provide cash flow whilst waiting for a deal to complete.
- To buy out the interest of a third party – e.g. a divorce scenario
- Secure the purchase of the home of your dreams and give you time to sell your existing home
- To postpone a threatened repossession, clear arrears and give you time to sell without being forced to sell at auction by your lender.
The problems of fast bridging finance
Bridging is an alternative to traditional borrowing when perhaps borrowers don’t have enough income to support two mortgages or their circumstances don’t permit a traditional mortgage.
Bridging tends to be faster because the lenders tend to worry less about your income and credit history. Lenders are more interested in how you will pay the total amount back than doing the checks you might expect with a traditional mortgage. They normally allow you to add the repayments to the loan but it is an expensive way of borrowing and you need to have a definite means to repay the bridging loan (including any interest you have added to the loan) – often the sale of the property.
The rates and fees on bridging finance are almost always higher than traditional borrowing partly because the risk is perceived as higher and partly because the lender only has a short window to make profit on the deal – often 12 months maximum.
Speed and price should not be the only factor in taking on a bridging loan and a customer should consider all of the positives and negatives of bridging loans before proceeding. The upside of taking out the bridging loan may well outweigh any perceived downsides relating to costs.