A Look into Bridging Finance and Why it is Beneficial for You
Bridging finance or bridging loan is a type of short-term loan. Usually paid off for a short period of time, it can take as short as two weeks or as long as 12 months usually with the goal of going for a longer term or permanent financing as an exit strategy.
A bridging loan is most commonly used for property acquisitions and purchases, especially when one needs to make a quick decision. The loan is also helpful in making sure that properties can be prevented from getting repossessed. It is also an ideal option for taking advantage of short-term opportunities. Some people also use it as a way to get their dream home while still waiting for their present home to sell.
As short-term loans, bridging loans generally get repaid when the property is sold. It is also repaid once the property in question has been successfully refinanced through a traditional financing provider or lender. In the lending market, bridging loans are considered as non-standard financing options due to the unusual circumstances that are involved and also due to the fact that it is short-term
In the UK, the use of bridging loans is not just limited to property alone. They can be used for businesses as well. For businesses that want to use bridging finances, it can be best utilised for situations where a company might be in need of additional funds to boost the cash flow. It is also a tool. Used for acquisitions.
When it comes to properties, bridging finance is most useful in breaking property chains. In the event where there are delays between the sale of a property and the completion dates, a bridging loan can be used as a finance solution for the short-term. There are also people in the UK that use bridging loans when they want to purchase a property at an auction since successful bidders will be required to pay a deposit. It is also possible for landlords and developers to take out a bridging loan to fund a renovation or a development project.
Typically, taking out a bridging loan over a twelve-month period means getting 15% yearly interests. This translates to 1.25% every month. Generally, loan to value will not go beyond 65% for commercial properties such as industrial, retail, and office. For residential properties, loan to value usually does not go beyond 80% based on the market value.
Bridging loans can be closed or open. Closed bridging loans have arranged timescales for the loan to end. An open type means that the loan’s completion does not have a fixed timescale. Borrowers should be aware that open bridging loans are generally considered riskier due to the absence of clear timescales. Without a timescale, the risk of him defaulting becomes higher.
The short-term period of a bridging finance makes it a very attractive choice for people who are involved in real estate transactions. Learn more about bridging finance and its benefits by reading about Tim Meakin from Toton online.