In the past, bridging finance was seen largely as a last-resort option. Only when no other viable option was available would a borrower consider a bridging loan, fearful of elevated interest rates and excessive borrowing costs.
Today, the bridging finance market bears no resemblance to the questionable short-term lending sector of decades gone by. It is heavily regulated, populated by highly responsible lenders, providing invaluable support for many thousands of businesses, investors and even households across the country.
Bridging finance has come full circle, having now become the first choice for those seeking affordable short-term funding. The more difficult it becomes to obtain quick and cost-effective funding on the High Street, the greater the appeal of bridging finance.
But what are the main features of bridging finance that have made it such a popular facility? While are more businesses and private borrowers than ever before taking out short-term bridging loans?
Typical Bridging Loan Features
All bridging loans are unique – bespoke agreements reached between the issuer and the borrower. However, the vast majority of bridging loans share several fairly consistent characteristics:
- Loans are available starting from around £10,000 and up
- Can often be arranged and accessed within a few working days
- There are no upper limits on how much can be borrowed
- Interest is charged on a monthly basis at around 0.5%
- The maximum LTV is usually capped at around 75% to 85%
- Loan terms vary from 1 month to two years
- No restrictions are placed on how the funds can be allocated
- Can be secured against a wide variety of assets of value
- Bridging finance can often be repaid early without penalties
- Applications welcome from poor credit applicants
The final entry in the list above is important, as this is one of the main factors that set bridging finance apart from more conventional funding solutions. Even with a poor credit history and/or a history of bankruptcy, it is possible to qualify for bridging finance.
You do not even need proof of income, or evidence of your employment status. You simply need to be able to provide adequate security (collateral) to cover the costs of the loan and show evidence of a viable exit strategy (when and how you intend to repay the loan).
Bridging Loan Functions and Applications
As bridging finance becomes more accessible, it is being put to use for a wider range of applications than ever before.
For example, many households have begun turning to bridging finance to break free of conventional property chains. You can use bridging finance to purchase your next home to access all the benefits reserved for cash buyers. You can avoid being beaten to the punch by competing buyers and you are not reliant on the prior sale of your current property to fund your move.
Investors looking to ‘flip’ homes for profit are also finding bridging finance a uniquely affordable solution. Where a property flipping project can be tied up within a few months, the interest payable on a bridging loan can be next to nothing – often less than 0.5% per month.
Funding auction property purchases is another popular application, where full payment needs to be made within 28 days. As a bridging loan can almost always be organised in less than two weeks, they are ideal for these kinds of time-critical purchase and investment opportunities. They can also be used to conduct minor and major renovations, prior to listing a property for its maximum market value.
Quite simply, a bridging loan can be used for any legal purpose and can be arranged at short notice. Repaid promptly, bridging finance has the potential to be more cost-effective than any comparable loan or mortgage from any mainstream lender.