Discover more about Bridging Loans
What is a bridging loan?
As the term describes, a bridging loan is a form of short-term interim funding that ‘bridges’ a gap in financing. This can take several different forms, but in the case of a classic bridging loan it forms part of a clearly defined agreement whereby the money is lent against a set of previously agreed-upon terms.
The most of important of these criteria is the duration of the loan, as it provides a liquidity solution before longer-term financing can be arranged and comes into effect. In short-term bridging finance, the so-called ‘exit time’ – when the loan is due to be repaid – is set beforehand, and while flexibility can be negotiated with the lender, the emphasis is on shorter term periods.
The repayment period can usually vary between two weeks and two years but, in the case of Bridge Help, we provide bridging finance to suit your personal requirements. After timing, the other important factor is how the loan will be repaid, and this can vary from the sale of a property or business to investment funds flowing into a new venture or a new long-term loan kicking in and clearing the bridging loan.
You may also occasionally come across alternative terms such as caveat or swing loans, but bridging loans or bridging finance are the most common terminology.
Who qualifies for a bridging loan?
In an ideal world everyone would have an excellent credit rating. However, where banks only tend to cater to those with cash resources or assets, we also consider people who fall outside of this standard set of criteria – which means we will also look at cases with a reduced credit rating or where there is no regular income.
Why do bridging loan lenders consider people that banks and similar financial institutions don’t?
Because a bridging loan is a short-term loan designed to help people with temporary liquidity shortfalls and its payment terms can be established in mutual agreement between lender and borrower.
Ours is a specialised niche segment within the financial sector that helps improve liquidity when it is needed most and reduces the number of foreclosures. As such, and in helping smaller scale investors realise their projects, it fulfils an important role within the economy. The increased risk is reflected in the interest rates, but bridging loan providers are there to help when no-one else does.
How much will you lend in relation to the value of the security?
We can lend up to 75% of the value of the asset you provide as collateral, though the exact percentage varies from case to case.
What kind of security is needed?
We will consider assets such as properties, commercial premises, mixed-use developments and building plots. We are lenders with a social conscience, however, so we will not accept your family home as security.
How do I repay the loan?
Your loan can be repaid in a number of ways within the agreed term:
• Through the sale of a property, investment or other asset
• The proceeds of investments, business ventures or business revenue
• Refinancing on to a traditional long-term loan or commercial or Buy-to-Let mortgage
• Funds from a pension fund, divorce or inheritance
What if I struggle to pay back the loan at the end of the term?
We work with you from the start to help ensure your venture is successful, but if you need more time we will review the situation together and, in the vast majority of cases, offer a loan extension. It is only if you repeatedly miss the extension deadline that your security could be at risk, but this is a last resort and we would always rather work together to establish a feasible payment plan.
Am I charged extra if I service the loan before the full agreed term?
We don’t charge you penalties for paying the loan off early, although you will still have to pay the full amount of interest, as stipulated in the loan agreement.
How long until I hear whether my application for a bridging loan is successful?
We work hard to ensure that you have a definitive answer within a couple of days. However, the legal due diligence process can take a bit longer, so if time is of the essence we will do everything in our power to help the process along to meet your timescale. However, having our own in-house legal team that specialises in property deals significantly speeds in the process.
How soon will I receive the money?
Once approved you should, under normal circumstances, receive the funds within one week of the paperwork being completed.
Are there any initial costs?
Under normal circumstances there are no upfront costs until such time as you proceed with the loan, when you may have to pay for documentation such as a valuation report, if you don’t already have one.
Can I request additional funds when the loan has become active?
If your security can cover it and you haven’t defaulted on your initial bridging loan agreement this is certainly possible.
Is my personal information treated with confidentiality?
Bridge Help takes your privacy and all the laws pertaining to it very seriously. We will never pass your details on to third parties for marketing purposes. We also apply all the required security procedures enshrined in the law.
How do the interest rates with a bridging loan compare to a normal loan?
As a rule, lenders of bridging loans charge a higher interest rate to balance the greater degree of risk, as well as solid collateral and in some cases a lower loan-to-value ratio. However, bridging loans are fast, convenient and require relatively little documentation. The principle is well-established in the United Kingdom and many countries around the world, and is commonly used in property development, among others. Bridge Help is a specialist in this form of finance.