A bridging loan is a type of short-term loan that is designed to meet the specific financial needs of borrowers. Typically, this type of loan is more expensive than traditional loans and can resolve the temporary financial shortfall. As the name shows, this loan is used to bridge the gap to an exit, usually a sale of an asset or refinance. Some situations in which a bridging loan can be used include purchase of new property while your existing home is on sale, buying a property at an auction, property development or renovation of a home.
This article will help you in understanding essential things about bridging loans.
Do You Need A Bridging Loan?
Before you apply for a bridging loan, you need to make sure whether this loan is right for you or not. As it is one of the most expensive borrowing types, you may not be able to afford this loan. It can be helpful in purchasing a new home or an asset only when one of your assets is going through the sale process. Thus, you should do proper planning about the repayment and exit strategy. You should know from where and how you will get the money to pay off the bridging loan. Moreover, you should have a second option for repayment if your first plan fails.
Uses Of Bridging Loans
There are multiple circumstances in which you can use a bridging loan. Some of the uses of bridging loans are as follows:
- Maintaining a place in the sales chain: when you have to buy a new property from the fund you get from the sale of a previous property, but the sale is not completed yet. A bridging loan can help you bridge the gap and you can proceed to purchase the new property. It is one of the most common uses of bridging loans.
- Property Auction: Auction can be a place for spontaneity and opportunity, and while it is both adventurous and exciting, it also means that properties can be purchased even if you do not have a mortgage agreement in place. A bridging loan will cover you till the bank approves your mortgage.
- Refurbishment of property: if you want to refurbish or renovate your home, and most of the high street lenders are reluctant to help you out. A bridging loan can cover the refurbishment cost and you can repay it after the sale of your property.
- Solve Short term cash flow problems: cash flow problems can arise because of different reasons while running a business. You can use bridging loans to buy new equipment or to meet payroll expenses etc.
Does a Bridging Loan Take A Long Time?
In most cases, bridging loans are arranged within hours and funds are released within 72 hours. But it can take a long time, and you might have to wait several weeks to get access to the funds. A bridging loan is a solution that allows an individual to move swiftly and take advantage of the market situations such as at an auction. A bridging loan can be arranged quickly as compared to traditional bank loans, but most of the bridging companies have a complex procedure for loan approval. However, lenders are very agile and expert in getting the necessary information from the borrowers and issue funds as soon as possible.
What Factors Delay The Loan Application?
There are numerous factors that can delay the application process of a bridging loan. In some cases, the lender’s own practices may cause delay. One major factor is the credit rating of the borrower. The better the credit rating of a borrower the easier for them to qualify for a bridging loan. The other factors include the value of the asset you are using as collateral and your repayment strategy.
If a lender finds that your credit score is good, your asset is valuable and you have clear plans for repayments, you can get quick approval and receive money in your bank account quickly.
You should choose a lender who is authorised by the Financial Conduct Authority and follows the best lending practices so that you can receive funds quickly and in a secure way. See the list of top bridging loan providers in the UK.