Guide to bridging finance

Short term fix, long-term benefits

The property and business worlds move fast, and when there’s a fantastic deal at stake or an opportunity you don’t want to miss, you don’t want finance to be the factor that stops you from moving forward. Short-term finance can ensure your purchase, investment or growth and progression are not hindered when cash is needed quickly.

What is bridging finance and how does it work?

Bridging finance is essentially a short-term loan that can be with you in weeks if not days and can be repaid when mainstream finance has been secured. As the name suggests, bridging finance bridges the gap, providing you with the funding you need fast and giving you time to secure traditional funding.

What types of bridging loans are there?

There are varying types of bridging loans – a closed bridge and an open bridge. With a closed bridge, the borrower will have a date in place for when the loan will be repaid. For example, they may be waiting on a property sale to complete, and the completion date may have already been agreed. Upon completion, the bridging loan will be repaid.
With an open bridge, there is no definite date that the loan will be repaid but an exit plan will be in place.
There is also first charge and second charge bridging, first being where there is no mortgage on the current property so allowing the lender to take a “first charge”, a second charge bridge is useful when you don’t want to disturb your current mortgage arrangements but have equity to support a short term lend.

When would I need a bridging loan?

From office moves to settling tax liabilities and hefty business expenses, all businesses will hit a point where they need extra funding, and they need it fast. In business, time waits for no man. Unfortunately, the high street is not always able to deliver this. Mainstream lenders that are willing to cater to small businesses (and many do not) will often take weeks or months to process an application and offer a loan. The market-leading bridging lenders we work with can issue a decision in principle in as little as 24 hours.

Bridging can also be used for property purchases when a mainstream mortgage isn’t available because of the condition of the property or to help investors purchase properties in need of renovation or refurbishment.

Will I pay higher rates?

Bridging loans can often come in at slightly higher rates than standard loans although there are lenders who lend from 0.44% per month which is similar to some of the mortgages we arrange. It is possible however to roll up your interest payments. This means you won’t have to pay monthly, but rather you’ll pay a lump sum at the end – making it an ideal solution for those people whose cash flow will improve but who need to use their current cash flow on other projects.

How much can I borrow?

All lenders will have different borrowing limits, and a lot will depend on your personal circumstances. As a general rule, the minimum you can borrow will be £25,000 and there is no maximum limit.

Why are they so popular?

In short – speed. The high street has never been the most efficient option when it comes to securing finance, but in recent years, following the economic downturn, increased regulation and affordability requirements mean the speed at which mainstream lenders work just doesn’t lend itself to the modern business or property investment world.

Why do I need an exit plan?

Bridging loans are intended for short-term use. As such, in order for your application to be accepted lenders will want to know that you have a plan in place to repay the loan. This is known as an ‘exit plan’ or ‘exit strategy.’ Without a plan of how you will clear the bridging loan, there’s a risk you will have to keep it for longer than you intended. While rates have improved considerably in recent years, they can still be marginally higher than traditional loan rates, so it’s always best to exit the agreement on time and we will always help facilitate this for you.

Where can I get a bridging loan?

At award-winning finance specialist “Finance 4 Business”, we can help to secure the bridging finance you need to pursue your project. Our experience and standing in the finance world has seen us develop strong relationships with the majority of the leading bridging finance companies in the market. Our ability to recognise the individual needs of each client enable us to develop a bespoke bridging solution for you. After all, broking is the new banking.