A bridging loan is a short-term loan taken from a specialist loan provider directly or through a broker. The Criteria for bridging loan is used to cover the gap between two transactions, such as buying a home when waiting for the sale of an existing one. This type of loan is available for both individuals and businesses, and lenders customise loans according to the needs of the borrowers.
As it is a short term loan, you need to repay the loan generally within one year. However, some lenders offer loans for more than a year. With bridging finance, you can get quick access to funds and fulfil your emergency financial obligations.
Bridging loans take a short time in approval compared to traditional mortgages and bank loans. Due to ease and flexibility, bridging loans are becoming more and more popular.
If you consider taking out a bridging loan and want quick access to funds, you should meet eligibility criteria. Although lending criteria may vary from lender to lender, some common things are required by all lenders.
Here we are providing a comprehensive guide on bridging finance UK eligibility criteria to help you get fast loan approval.
Who Is Eligible For Bridging Loan?
Bridging loan providers are not mainly concerned with your credit score or income source. Instead, they look at the property’s value that you are using as security against the loan and your exit strategy. An exit strategy is a plan of how you will repay the loan amount. You must fall into following bridging loan criteria to get funds.
- Borrowers must be over the age of 18, and some lenders have an upper age limit.
- For a business bridging loan, you must own a private individual or limited company.
- Borrowers must have one or more properties that can be used as security against the loan.
- You must live in the Uk or have a registered address in the UK.
- Want to borrow at least £10,000.
- Another important thing is an exit strategy. A borrower must have a defined exit plan to repay the loan amount.
Which Factors Do Bridging Loan Lenders Consider?
When you apply for a bridging loan, lenders consider some factors before approving your loan application. You should consider these factors before applying so that you can improve your chances of approval.
Type Of Property
One thing on which your loan provider assesses your loan application is the type of property for which you intend to use the loan. The loan providers accept almost all types of properties, but the interest rate and charges change with the type of property.
For example, the interest rates and charges are better for residential properties. On the other hand, commercial bridging loans are still unregulated and offer high interest rates.
The information that a lender requires about the property you are going to buy include:
- The tenure of the property.
- The purchase price of the property.
- The value of the property.
- The cost of work if you want to refurbish a property after purchase.
- The estimated value of the property after refurbishment.
Exit Strategy
When you apply for bridging finance, you have to provide an exit strategy. Bridging loan providers assess your exit strategy. The exit strategy means when and how you will repay the loan amount. Most of the borrowers tend to repay the loan amount by the sale of a property or refinancing.
For an open bridging loan, you do not need to provide the exact date to repay the loan amount. But for a closed bridging loan, you need a strong exit strategy for a quick approval and getting the best rates.
Sufficient Collateral
One good thing about bridging loans is that lenders do not necessarily conduct strict credit checks. Therefore, it is very beneficial for the borrowers when all the available loans in the market need a good credit score. However, for securing a bridging loan, you must have valuable property to use as collateral.
You can use a commercial, residential or mixed use property as collateral. Bridging loan providers need collateral to make sure that you are able to repay the loan amount at the end of the loan term.
Employment Status
Another factor that bridging loan providers consider is your employment status. Generally, bridging loan borrowers are property developers, and lenders assess them based on previous projects.
If you’re not a property developer and applying for bridging finance, your lender checks your employment status and makes sure you have enough income that you can repay the loan on time. For instance, if you constantly apply for a payday loan to maintain your finances, lenders will be less likely to approve your loan application.
Suppose you want your loan application to proceed faster. In that case, you must meet bridging loan requirements that include a strong exit strategy, valuable property as security and enough income to prove affordability.
What Can A Bridging Loan Be Used For?
Generally, property developers and professional landlords use a bridging loan to buy a home or property. However, there are many other uses of bridging loans. Here are some situations where a bridging loan can be helpful for a borrower.
A Quick Property Purchase
The most common use of bridging loans is to fund a property purchase. These are popular among individuals who want to complete property purchases completely. If you need funds to purchase a property in the market, you want quick access to funds.
Traditional bank loans and mortgages take a long time to arrange, while a bridging loan can be available within a week. Thus, you can complete the process of property purchase by using this loan. Meanwhile, you can search for long term funds.
Property Renovation Or Refurbishment
Some properties are considered unsuitable for securing a mortgage. For example, if a residential property lacks a kitchen or property, you can not get a mortgage on it. However, you can apply for a bridging loan for the refurbishment or renovation of a property. Bridging loan providers accept the properties that are considered non-standard for a mortgage.
You can use this loan to renovate the property to increase its value before the sale or to make it suitable for a mortgage. The loan amount can be repaid after the sale of property or when long term finances become available.
Purchasing A Property At Auction
Auctions are great opportunities for property developers and landlords because, at auction, the property is sold at a lower price than its value in the market. However, you must have appropriated funds before you make a bid at an auction. Because if you win a bid at an auction, you have to pay a 10% deposit on that day and the remaining amount within the next 28 days.
Bridging loans can be used to purchase properties at auction because they are quick and easy to arrange. In addition, it helps you in completing the purchase within a given time frame.
Maintaining Place In Sale Chain
One major thing that may hold you back from purchasing a new home is a delay in selling your existing property. Here short term finance can fill the gap so that you can complete the purchase of a new home.
In addition, you can repay the loan amount after the sale of your old property. It is the most traditional and common use of bridging loans and a way to break annoying property chains.
Solving Business Cash Flow Issues
Almost every business faces cash flow problems at some point due to many reasons such as customers paying invoices late, a bank call for an overdraft facility or seasonal factors.
Bridging finance is available for businesses and can be used to solve problems and keep your business running smoothly. For example, you can use the loan amount to pay wages, purchase new equipment, restock products, cover market costs and pay tax bills.
Repossession Prevention
If your property has a risk of repossession, you can take out a bridging loan to pay your debts and prevent your property from repossession. In this way, you can prevent the forced sale of your property and sell it on your terms.
How Can You Get a Bridging Loan Quote?
Best way to find a bridging loan at favourable terms and rates is to explore the whole market. In this way, you can ensure that you are availing of the best deal according to your requirements and circumstances.
Most bridging loan lenders provide free quotes. You need to provide necessary information such as personal details, how much money you want to borrow and for how long, and the lender provides a quote according to your needs. If you find the quote suitable, you can proceed further; otherwise, take quotes from other providers and find the best deal for you.
If you do not have enough time to shop around, you can use comparison sites to get a quick comparison without wasting time and energy.
What Is The Application Process Of Bridging Loan?
Once you decide to get a bridging loan, you need to make an application. One thing you should remember is that you must have a strong exit strategy to convince your lender. All the bridging loans are offered for a short time and are interest-only debts. Generally, borrowers do not need to pay monthly instalments, and a lump sum is paid at the end of loan terms. You can take a loan from a direct lender or through a broker.
The application process of bridging loan includes the following steps:
- When applying through a broker, the broker assesses you to find your employment status and your creditworthiness.
- You need to provide your exit strategy and evidence supporting it to the brokers to find its viability.
- The broker will find a lender matching your needs and get a quote.
- If you are borrowing from a direct lender, you will need to fill an application form and provide the required information to the lender.
- Once the underwriting process is completed, your broker or lender will present you with a conditional offer.
- After that, your application is passed to the solicitor.
- If the solicitor is a good one, the completion and release of funds take place in a short time.
Many lenders allow borrowers to apply online for bridging finance. It can save borrowers from the hassle of going to the market and meeting lenders in person. However, you should seek whole-of-market advice before making any final decision.
How Long Does It Take To Get A Bridging Loan?
One of the most common questions that borrowers ask is how much time it will take to arrange a bridging loan. The answer might be surprising for you.
- A bridging loan is quick to arrange compared to traditional mortgages and property loans that can take weeks or even months.
- If you have a viable exit strategy, your loan application can be approved within 48 hours.
- The bridging loan lenders are in a position to provide you with a conditional offer within a matter of days.
- Speed is a key characteristic of bridging loans, and sometimes the loan application is approved the next day.
What Should You Consider Before Applying For Loan?
Cost Of Bridging Loan
The interest rate of short term bridging finance is higher than the mortgage and other bank loans. That is why most borrowers consider it as a last resort. Other than the interest rate, you must look at the fees that a lender is charging.
- It can include arrangement fees, administration fees, loan origination fees and early or late repayment fees.
- All these changes add up to the borrowing cost and make it more expensive.
- However, for most borrowers, the benefits of bridging loans are enough to outweigh their interest rate and fees.
Risk Associated With Bridging Loan
The main risk of bridging loans is the risk of late repayment. Usually, you have to repay the loan amount within a period of a year. If you are unable to repay the loan on time, you may have to pay late repayment charges, and in worse situations, there are chances of repossession of your property.
- The lender has a right to sell your property to get the money back. Therefore, you must take into account the risk of repossession and take a loan only if you can afford to repay it on time.
- Now that you have all the information about how you can apply for a bridging loan, its eligibility criteria and how they can help you in different situations when you need quick finding.
- We hope that you can make a better decision whether you should get bridging finance or not and improve your credit score and exit strategy to increase the chances of your loan approval.