Bridging Finance

Bridging loans are often overlooked as a short-term finance option. Typically associated with the stopgap borrowing needed to keep a collapsed property sales chain together, bridging loans are not always considered for how they can facilitate other opportunities. Their temporary nature and ability to raise capital quickly can create possibilities that conventional borrowing cannot.

So…what is a Bridging Loan?

A Bridging Loan is a type of short-term property backed loan. They are designed to be arranged quickly – typically, over a 3–36-month term. Bridging loans are secured by a first or second charge against the property and follow the same steps in terms of valuation and legal charges as long-term loans.

The uses for bridging loans are far more extensive than people may imagine; as long as there is a valid exit strategy, the funds can be used for a variety of commercial needs. Common uses of Bridging loans are:

  • Commercial property refurbishments – if you are considering purchasing an uninhabitable property, you may need funds for a variety of purposes to improve the quality of a property alongside the purchase. These loans are arranged and released quickly, which can be a benefit in these situations to get the ball moving and eliminate any delays for investors. Bridging Loans can also fund 100% of the property price, meaning a deposit is not often needed (Existing security required).
  • A bridge to let loan – a bridge to let has a built-in exit strategy of a pre-approved refinance onto a traditional Buy to Let mortgage. A bridge to let can help provide a quick capital injection to secure the purchase of a rental property at a competitive rate. With the number of prospective tenants growing greater than the number of available properties, currently un-mortgageable properties offer a lot of untapped potential.
  • Buying a property at auction – different from your typical purchase, auction properties complete much faster; a non-refundable deposit is needed on the day, and you usually have 28 days to pay the balance. If a conventional mortgage cannot be arranged within this timeframe, a bridge can allow the purchase to complete whilst you look to refinance at a later stage.
  • Business purposes – the quick, short-term finance that bridging loans offer can be an attractive option for those who need liquid funds fast. Whether to provide a cash injection, acquire stock, facilitate a business venture, or buy a new premise, there are many uses of a bridging loan for your business needs.

The good, the bad, and the potential

There can be a common aversion to bridging loans. The cost of the loan is viewed more as a roadblock rather than a bridge to opportunities that are not otherwise accessible. A bridging loan can help you obtain funds that would not be available via conventional borrowing. The long-term benefit frequently outweighs the short-term cost as the access to funds can facilitate your projects that would be almost impossible to undertake without it.

Another misconception around bridging finance is around income. It is common to ‘roll up’ payments and interest and clear the whole debt at the end of the term. Therefore, monthly payments are not a requirement, and a stated income is often not relevant. Flexibility is a great benefit of bridging finance as it can be tailored to suit your borrowing needs.

The recent economic impact of inflation and rising interest rates have created a new opportunity for those looking to secure finance. In the current climate, investors and landlords are faced with a dilemma over whether to tie themselves into more expensive long term fixed rates deals or opt for a variable rate.

The versatility and short-term nature of a bridging loan allows investors to bide their time while the market settles down. Bridging loan rates have remained consistent and stable, reflecting the heightened competition in the bridging market. Rather than tying yourself into a long-term financial obligation and Early Repayment Charges, a bridge could offer breathing space whilst you wait for the dust to settle.

At Cornerstone Finance, we want to help you understand all your potential finance options so that you can choose what is best for you and your business. If you’re unsure if a bridging loan is right for you, come and speak to us for financial advice that you can trust.