Bridging loans are one of our most popular products, and probably one of the most versatile lending options on the market when it comes to loans and finance more generally.
Our clients use them for all sorts of things both as a consumer and commercially, and the majority of the time a bridging loan is used a short-term solution to a lack of liquidity.
That being said, we also find that a lot of our clients, and a lot of the new enquiries we deal with, are either unsure what bridging loans are, or aren’t quite sure what they can be used for and, as such, we spend a lot of our time providing free, no obligation advice for our clients on this basis to help them understand what a bridging loan is and what it can be used for.
To that end, we’ve put together a short guide for you here to give some bridging loan examples.
What is a bridging loan?
In essence, a fast bridging loan is just a short term loan that is designed to ‘bridge the gap’ between transactions. It can be used for many reasons, but the interest is usually higher than a traditional longer term loan, but they’re usually much quicker to arrange and the lending criteria isn’t quite as strict.
To help you understand the process for bridging loans, and what you might be able to use a bridging loan for, we’ve included three bridging loan example here to illustrate things better.
On High Street in Kensington W8 one of our clients required a bridging loan to convert 10 apartments. We were able to arrange a bridging loan of £9,500,000 with a rate of 6.9%. Our client used the funds to refurbish an existing property and split into 10 individual apartments before then arranging further long term finance and renting them as part of his portfolio.
Our client in Hadley Wood EN4 came to us to arrange a bridging loan to convert two properties, two houses, before arranging longer term finance with a mortgage. The client took out a term loan for £3,672,500 at a rate of 4.2%. Our client found a bridging finance provider after speaking to one of our experienced bridging loan brokers and agreeing terms with one of our experienced panel of lenders.
Our client in Ollerton NG22 wanted bridging finance to convert 12 apartments and went through our brokers to arrange a loan of £1,501,806 at a rate of 8.5%. Our client then went on to sell these apartments after completion, exiting and finishing his loan on time.
As you can see, many of our clients use bridging loans for property and property development, whether that’s residential bridging loan or commercial bridging loan, it doesn’t really matter as long as the client has the means and the plan to be able to re-pay the loan after the agreed term.
How to exit from a bridging loan?
One of the most important aspects of bridging loans, and bridging finance more generally, is your ability to exit the loan and provide the lender with a solid plan for being able to repay your loan within a timely manner, and providing security to them that you’re able to pay.
This is an example of an exit plan, and there are many different examples of being able to plan your exit from a bridging loan.
In the examples above, our clients were able to show to the lender that once their project was completed, they were able to repay their loan on time. That could either be as the result of organising a longer term finance option, such as a mortgage, or selling the properties on at the open market value.
A good example would be to provide your lender with a valuation of similar properties in your area, or with a valuation that will show the value of the property project once completed. This will, in turn, show the lender that after you’ve completed the work required that you’ll then be able to get the price you think you will.
Most bridging loan and bridging finance companies will expect you to provide security against the loan either in the form of a deposit, or by using the property you’re converting as security against the loan.
Experience is also important, and you can also show your lenders that you’re lower risk by displaying that you have experience completing these types of projects in the past. Your credit rating, to a lesser extent, will also be able to display this.
Costs associated with a bridging loan
The most popular method to arrange a bridging loan is to organise it through a brokerage or intermediary who are able to search the entire market for the best deal to suit your circumstances.
This will incur an arrangement fee, however, there are different ways to pay this, either at the beginning, with the capital of the loan, or at the end, and this is something you can come to an arrangement on.
Other fees may include solicitors’ fees, conveyancing fees and potentially other legal fees, however, this is something we can advise you on in more detail depending on your circumstances. Ultimately, we’ll ensure that there aren’t any fees that take you by surprise.
Examples of when to use bridging loans
As we’ve previously mentioned, many of our clients use bridging loans when developing property or as property investors. This, within the property industry, may involve building a property from scratch, refurbishing a property into an inhabitable standard, or converting a property.
Converting a property could be either turning a larger property into smaller properties, converting a number of smaller properties into a larger property, or changing use from commercial to residential, or vice versa.
Aside from that, we also find that many of our commercial clients also use a bridging loan to cover cashflow problems. For example, if there are a number of outstanding invoices awaiting payment, a bridging loan could be used, or it could also be used to stop bankruptcy proceedings.
Ultimately, as long as you’re able to show you’re credit worthy, we’ll be able to help you with a bridging loan.
Bridging loan calculator
To help you use an example of a loan, we’ve included our handy bridging loan calculator which allows you to use your own figures to get a good idea what property investors may be able to afford when using bridge finance. This typical bridging loan example, through the calculator, allows you to adjust the interest, the fees, the term and the amount to be able to see what it may mean for you.
Alternatives to bridging loans
There are some alternatives to bridging loans, however, it will all depend on your circumstances.
Our team of experienced brokers will always tell you if they don’t feel like this type of loan is for you, and that a different type of finance would suit your needs better.
We have, for example, development finance and auction finance, as well as other options, but our advice is to reach out to our team first.
Speak to our brokers to learn more about bridging loans
We’ve spent years putting together a team that are experienced, talented, and friendly so that our clients can be confident that whenever they reach out and speak to us, they’re always getting the best possible advice.
Secondary to that we, as a business, have also spent years cultivating a relationship with the best lenders on the market, and through those relationships we can ensure that our clients always have access to not only the best rates and terms on the market, but also exclusives that you won’t find anywhere else, so why not get in touch today?