The reason for ‘bridging’ or a bridging loan is to provide short-term cash for a real estate transaction until permanent financing of the customer is secured. Bridging loans are usually used to bridge the cash gap when completing a commercial or residential real estate transaction. Everyone knows it’s difficult to time the sale of a property to coincide with the purchase of another property. The smallest delay can wreak chaos on the transactions, and create challenges that are difficult to overcome. Losing a deposit on a property, having to pay multiple mortgages, either commercial or residential purposes, for any length of time can spell financial disaster. This is where bridging finance comes in and helps.
The aim of a bridging loan is to remove the financial challenge so that commercial transactions will proceed as usual. In some situations, bridging finance provides additional funds so that a company can continue to pay the lease on its existing commercial properties for as long as it is on the market. There is a process to go through before a bridge loan will be approved. If you have already built a relationship with an institution then that is a good place to begin if not, spend a bit of time researching one with which you feel comfortable. It is bound to save you time and money in the long run.
One general requirement for attaining a bridging loan is collateral. Most of the applicants will be asked to secure the loan with some sort of significant collateral. Examples of acceptable collateral include heavy machineries, business equipment, and inventory, commercial or residential properties owned by the applicant. Having a good credit history and a great relationship with a lender have always helped when applying for a bridging loan. There have even been situations where bridging loans were approved with only a signature and there was no collateral necessary.
But even with a great credit score, you must expect to pay a little higher rate of interest for this type of short-term bridging loan as there is increased risk in the property/collateral when there is a high loan to value. Other factors will also be involved in determining the interest rate. The applicant’s calculated credit risks, the speed with which the loan needs to be completed indicates risk and the amount of time the loan is needed are all factors to the equation too.