Bridging loans are one of our most popular financing products for a good reason; they’re flexible, fast and can be used for almost anything.
We’ve seen a spike in enquiries from our clients recently as we tend to find that most of the bridging finance we organise is for those involved with property development and investment, however, as the economy grows back to full strength we’re also seeing many more enquiries come through about what bridging finance can be used for.
Ultimately, a bridging loan is incredibly flexible and has a large number of uses, so we’ve put together a useful guide to give you a better idea of what bridging loans can be used for.
What can bridging loans be used for?
The term bridging loan is fairly literal in that it’s designed to be a bridge between to funding situations. They’re designed to be fairly short-term in nature, and usually are used as a stop gap between situations. For example, to pay for building work until a property is sold.
Again, however, they’re applicable to a huge variety of situations, so we’ve listed some here.
Breaking a property chain
Probably one of the most common uses for a bridging loan, they can help to ‘bridge the gap’ between a property purchase and a property sale.
In typical circumstances, clients tend to be involved in a property chain where the sale of their property may not be completed in time to complete the purchase of their next property, removing the risk that they’ll lose out on the sale all together.
The loan is then repaid once the sale has completed and is taken for short term purposes.
Refurbishment or development
Again, following the theme of bridging, or short term, many property investors are able to get an excellent deal on a property that needs some refurbishment work.
In many instances, a property in a state of disrepair won’t qualify for a mortgage and so developers will require capital in order to restore the property to a good standard in order to arrange longer term finance, and bridging loans offer that flexibility until the work has been completed.
Once the work is completed and the developer either sells the property or arranges a mortgage, the capital is then used to repay the initial bridging loan.
Bridging finance works very well for our clients that buy properties at auction, as the auction process tends to happen quickly and, in many circumstances, it isn’t possible to arrange longer term finance during the purchase process.
In this instance a bridging loan works perfectly to give the buyer the capital to complete the sale within the required timeframe before then paying any bridging finance off by either refurbishing the property and selling it or arranging a mortgage.
Many of our clients can run into unforeseen circumstances, especially in property and in business, and so there are many instances where clients simply need to re-arrange an existing credit facility.
We’re usually able to extend loans, find cheaper deals or release further capital for our clients if they need us to, and we’re one of the most experienced on the market at arranging these types of facilities.
Property conversions tend to be, by their nature, fast paced and sometimes unpredictable and that means that many of our clients need to know that they have a flexible and reliable line of credit to be able to ensure that they can fund refurbishments and conversions with the unforeseen costs that such a project can bring.
A bridging loan until the conversion is completed is more often than not the best solution to this type of problem.
Bridging loan example
If we were to take a property chain break bridging loan as an example, a client may be looking to sell their property for £150,000 and purchase the next property for £200,000 but are facing delays in the sale of the primary property.
They have released £60,000 from the value of the first property as a deposit, meaning that the Loan to Value, or LTV, of the bridging loan is 70%, for a total of £140,000. They take the loan out for an initial 3 months, paying 1% per month across the three months before repaying the loan once their property is sold. They’ll have paid £4,200 in interest over the period.
The nature of business is often unpredictable and if you’re in an industry that relies heavily on cashflow then it can be even more so. This is why many of our business clients rely on bridging loans in the short term if they experience a cashflow issue, using the finance to bridge the gap.
Often our clients can demonstrate when they’re expecting to collect more income from outstanding invoices, and so will borrow in the short term until those invoices are cleared.
Sometimes our clients experience issues which means that they aren’t able to keep to their commitments either with mortgages or other property finance and a repossession order is made. In this instance we’re able to arrange finance for our clients so that they can sell the property on their own terms rather than seeing it sold at an auction and potentially losing out.
Tax and probate
If you’re named in somebody’s will as a beneficiary of inheritance, it’s likely that you’ll be the subject of taxes and solicitors fees along the way, however, the process for actually receiving the funds can be complicated and lengthy, meaning that fees and costs may become payable before any funds have been received.
In these instances, we’re able to arrange short term bridging loans to cover the time between the funds being available and costs being due.
Bridging loan calculator
To help you get a good idea of what a bridging loan may cost you, we’ve included a calculator that you can play with to see what you could qualify for. You can change the amount, the LTV, the interest and the length of time you’d take the loan for and see what you may be paying.
Can I get a bridging loan for 6 months?
In short, yes you can, bridging loans are very flexible and, depending on your circumstances, you will be able to get a bridging loan for six months.
Advantages of using bridging loans
As we’ve mentioned above, bridging loans are one of the most popular products that we arrange for our clients, so we’ve listed a few of the main reasons we hear as to why they’re so good.
With terms from 1 month anywhere up to 24 months and beyond, bridging loans are extremely versatile and tend to be much more suitable than fixed finance for customers who are in industries where they need quick access to capital.
In many cases we can have agreements in principle for our clients the very same day, meaning that they’re then confident and able to get on with what they do best, in the knowledge that the capital has been secured for their project or business.
In many cases where our clients arrange bridging loans rather than, say, mortgages or longer term finance, it actually works out cheaper for them to be able to use a bridging loan for the exact time they need it rather than extended periods where they may be charged for repaying the loan early.
Alternatives to bridging loans
As a highly experienced brokers, we know that bridging loans or a bridging loan may not be the right solution for you, and there are a number of options and other products that we can arrange if it turns out that bridging isn’t the right thing for you.
Speak to our senior brokers about other bridging loan uses
If you’d like to speak about bridging, or a bridging loan, in more detail, then get in touch with one of our senior brokers today who can talk you through the process, understand your situation, and shop the market for you.