Suitability of a bridging loan – is it right for you?
Many people overlook the option of a bridging loan because they associate it with the stop-gap finance needed to keep a collapsed property sales chain together. In fact, bridging loans are a great option for many other requirements. In this article we’re going to look at the criteria for bridging loans and what a bridging loan can be used for.
Let’s start with the basics, in that applicants must be at least 18 years old to acquire bridging finance. In most cases, bridging loans are secured against property (commercial or residential) in the form of a first, second or third charge (first charge if the property is unencumbered/debt free). In some cases, it may be an option to raise funds on other assets though this does depend on the liquidity and stability in value of that asset.
There are many bridging finance providers that offer loans to those with impaired or adverse credit history. Adverse credit history may involve arrears, county court judgements (CCJs), individual voluntary arrangements (IVAs) and even bankruptcy.
The uses for bridging loans, which can be arranged over a 3 to 36-month term, are more extensive than you may imagine. The very nature of a bridging loan is that it is a short-term finance option. This extends to far more than keeping a property chain together!
Common uses for bridging loans are as follows:
- Auction finance where you need to have the money on hand. There often isn’t time to put a traditional mortgage in place and the property also may not be in a mortgageable condition (and where accessing funds speedily is essential).
- Similar to the above, buying a property where a regular mortgage provider will not lend. This may be due to structural issues or whether the property is in a habitable condition.
- Financing a renovation, extension or other major works.
- Clearance of debts and as mentioned earlier, clearing bankruptcies.
- The acquisition of a business can be achieved using a bridging loan as short-term finance. Bridging loans are not only for personal use!
- Improving business cashflow with an injection of liquidity.
- As the name suggests, bridging a gap in finance whilst waiting for other funds to become available.
- Keeping a sales chain together. If you’ve found the home of your dreams, but suddenly lose your buyer, the traditional option is to use a bridging loan to enable the chain to move forward and complete on your new property. The bridging loan and associated fees is then cleared when your original property is sold.
Another misconception around bridging finance is around income. It is common to ‘roll up’ payments and interest and to clear the whole debt at the end of the term. Therefore, monthly payments are not a requirement and a stated income is often not relevant.
If you are not sure if a bridging loan, development finance or other short-term finance is right for you, feel free to contact us and we’ll be delighted to discuss your requirements.
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