To begin with we will take a look at what exactly is a bridging or short term loan loan. A bridging loan can be described as a loan that covers the gap between one finance deal and the next. For example, a bridging or short term finance loan is commonly used in situations where ‘standard’ finance options cannot possibly deliver the finance you need within the required time frames
Bridging or Short term finance loans are commonly used in a number of situations, for example:
- You have applied for and been unconditionally approved for finance, however days before settlement your financier advises that they are unable to complete the finance required as promised. In most cases an extension can be arrange, however if you have an uncooperative vendor, they may insist you complete the purchase contract on the required date, or stand losing a considerable deposit placed to secure the property.
- An opportunity arises to purchase a well priced asset, provided you can come up with the capital in a short space of time. If the time frame required to provide the finance is shorter than two weeks, most ‘standard’ financiers will be unable to provide the appropriate funds to complete the transaction and the opportunity may go begging – however, a short term or Bridging Finance loan may allow you to seize the opportunity and allow time to refinance under a longer term arrangement.
What is my bridging loan secured against?
Your bridging loan is generally an advancement against property security which is used as collateral. As a result your bridging loan is secured against property. Despite the fact that your bridging loan is secured against property you will be required to pay a higher level of interest due to the short-term nature of this loan, and the increase service levels provided to ensure a efficient and timely advance of the funds required
What time frames can I lend my money over?
Generally Short Term or Bridging finance loans extend for periods of 2 to 4 months although every good short term lender will give you the opportunity of flexible repayment times. As a general rule you will only pay the interest in monthly rests for the period you hold the advanced funds off with the principal amount being paid off at a time arranged between you and the lender. These terms are part of what you will negotiate in order to find the best solution for your needs.
Advantages of a short-term bridging loan
The main advantage of short-term bridging loan is the superior service and fast turnaround provided by the broker or lender seeing the due diligence process fast tracked and decisions made quicker. Another great advantage of a bridging loan is the ability to get a very quick answer thereby putting your mind at rest in regards to your lending needs.
Is Bridging Finance expensive?
Not if you consider the opportunities or potential savings it can generate. Whilst the rate may appear high initially, it is much better to evaluate the entire cost of a Short Term or Bridging Finance loan based on the opportunity cost it generates.
For example, if you have placed a 10% deposit on a property contract and without the use of a short term or Bridging Finance loan you stand to loose the entire deposit, PLUS be sued for potential specific no performance, the cost of a Short term or Bridging Finance loan on an overall basis may not seem that expensive. Further, if through the use of a Bridging Loan you are able to secure an opportunity that will generate equity or revenue far in excess of the initial costs of a Bridging loan, it is obviously very worthwhile to take out a Bridging facility to secure the opportunity.