We’ve all been in that position. Driving back from work, after one of those days where you hardly feel the difference between a Tuesday or a Wednesday. However, then suddenly an image pops up in your head.
Yes, you keep on driving, but now your mind is somewhere else, you are now picturing yourself in that very property you’ve always wanted. You know deep down that there’s no need to check
So, you keep on driving, but the image fixed in your mind. After some thought, you decide to use some financial advice.
Just in case there would be a small window of opportunity for you to dream a little longer. However, what if the financial advisor would speak of not a window but a bridge? A bridge that may take you to the property you so eagerly desire. Alternatively, the amount you desperately need. Let us discuss bridging loans and their uses.
What is a Bridging Loan?
A Bridging Loan is a financial loan given in short periods, typically borrowed when there is a gap to fill between selling an existing property and buying another. When you require quick cash flow, to keep a business afloat and several other scenarios.
The way to obtain a bridging loan is when you already have a property to put up as security as the lenders will lend according to the real value of your asset.
Let’s say you still have your current home and you see no progress at all in its selling. You can always acquire the loan to buy the new home, and then pay off the loan once the existing property gets sold.
The property can be of any type, residential, or commercial. The lender will lend according to its market valuation. The value determines the amount you get and the LTV they offer.
If you would apply for a loan on the security of the existing property to buy another property, you will receive the finances swiftly, regardless of your current income or the sale status of your existing property. Moreover, even irrespective of your credit history!
There is some flexibility in how you repay the bridging loan; there are several options typically offered by bridging loan companies. These include:
- paying the interest monthly until the end of the term when the full loan payment is made, known as monthly payments
- Paying the loan interest at the end together with the loan amount. Known as deferred or rolled up interest
- Borrowing the interest amount at the beginning with the loan and then repaying at the term-end
In other words, a Bridging Loan represents one of the best options in the industry for financial emergencies.
Originally it was destined for Landlords and Developers, but hard times and even crisis have made their way through the present economy, people looking to buy their home now use bridging loans.
Its recommended that if you would like to apply for a bridging loan to use a bridging loan broker. The broker will already have established relationships with lenders. You are allowing the broker to choose the right bridging loan company for your particular needs. Ultimately this will save you money and time.
Bridging loans are a quick, and maybe a safe way to get your hands on the money you need. However, they should be used with caution. Not doing proper research on the topic, not having a broker helping you and not having taken the time to verify the lenders. It may cost you more than what you bargained for if you do not understand all the costs and terms. Remember not paying on time puts the security property at risk and maybe taken by the lender.
Commercial Bridging Loans
A Commercial Bridging Loan is an option to fill a gap when fast finance is required. The only variation is that the property dedicated to business must be at least 40% of the total amount the property is worth.
For example: Let us say you would buy a small two-floor building, with retail on the first floor and a small apartment on the second floor, the amount that the retail is worth should cover at least 40% of the total amount of the property. Otherwise, it cannot become a Commercial Bridging Loan.
These loans can be applied for when you are buying a commercial property, like an established business, a retail center, a part residential/part commercial property, or whatever other property dedicated to commerce.
The repayment does not have to happen immediately. The borrower can start paying some months after he or she has received the loan in full. There are no special qualifications required to obtain a Commercial Bridging Loan; you will need a security property.
The lenders will typically work very quickly to complete the loan application process. The speed depends on how fast you get the documentation they require and complete the valuation.
It becomes a great advantage for the individual in terms of buying a property, because time can be of the essence when you have a good deal on the table.
Some good deals may be a property on sale below market value, such as in an auction. In the property market, the advantage is to the person who can get hold of cash quickly when required.
Another advantage is that a Commercial Bridging loan can be requested to cover a mortgage at a later date, that way eliminating the need to go to a bank or a lender to get a mortgage for your new property.
Luckily nowadays there are many short-term lenders, and that number is only increasing, as more and more customers show up. So, there is a constant wave of lenders entering the market, and you, as a customer, have several different options and choice, and the market is lowering the interest rate.
Bridging loans can be arranged within 72 hours in cases where the money is needed fast. Of course, if everything would go as it is expected to and all documents are submitted. Some loans could take even a few weeks to complete but compared to a traditional mortgage which takes months to set up; bridging loans are swift.
Most bridging finance companies and lenders would use a delicate and somewhat conservative lending process. However, it remains the quickest and most effective way to get your hands on the funds you need.
The Bridging loan companies, unlike banks which have much red tape to go through (It is just something that comes incorporated into the banking service) are more flexible. So that’s where once again Bridging loans present the quickest way.
Bridging finance might be the best option, but remember the fact that short-term financing will always be more expensive than long-term lending. So yes, in the end, you are paying for higher interest rates than you would with a conventional mortgage.
The best way to approach a Commercial Bridging Loan is to keep the payback term short. However, a common mistake is counting on your existing property to sell quickly, and in many scenarios, it happens that it doesn’t. So, in other words, you got your loan, but your previous property doesn’t sell or money is not raised to repay the loan, and the agreed time is over. So, you end up paying very high-interest rates, and the situation will remain that way until the old property finally sells. Its advisable to have a sound exit strategy.
A bridging loan represents a great way to go, if used properly. However, it does carry its risks, and they can become considerable risks. That is why the decision of taking out a loan has to be a premeditated and properly investigated one. It is advisable to always use a financial adviser before taking out a bridging loan.
Commercial Bridging Loans and Their Uses
Commercial Bridging Loans can be used to purchase most available types of properties. They can be instrumental in property auctions, for example. As long as a valid exit strategy is in place, the funds could apply for a variety of business reasons — cash flow limitations, covering tax liabilities, the need for working capital, and industrial equipment.
Usually, the decision to use a Commercial Bridging Loan comes from the speed that the money is needed and the speed it could be acquired. High street banks will always have their dilemmas, however, though it still is a little conservative bridging loan lender can be less concerned by previous credit history, making it a most accessible way for anyone to apply through brokers.
Buying Property in Auction
Commercial Bridging Loans can be used negotiated in a matter of days, that is why they represent a perfect option when buying properties at an auction. Property auctions are very common, and most properties there are bought through Commercial Bridging Loans, where the completion is required within 28 days.
Getting hold of cash quickly for business
Another right way to bridge would be when you need to raise finance quickly; this would provide easy access to cash. Also, when you want to refurbish a property or finish the development of a new one.
Paying Off a Mortgage
Also let´s say that the property you own, in its existing condition would not cover the mortgage with a lender. You can get the loan and secure the property with its worth.
Buying Below Market Property
If you are in property investment or flipping properties, there will always be a constant buying or selling of properties. At specific points, you may be short of cash, or some delay might show up, and suddenly a bargain shows up and your plan meets a dead-end by the lack of funds. It would be ideal to consider a bridging loan at this point.
Saving a Property From Foreclosure
Another of the most common scenarios where an individual would be when they are about to lose their property, unable to pay the mortgage. House repossession is a genuine and widespread existing problem in the financial industry. It is legal, and it is done by mainstream lenders such as banks. Many have lost their properties to a bank simply because they do not have the money to pay. A Commercial Bridging Loan can be almost the only option available in a case like that.
Raising Cashflow for Business
Taxes are something we all have to pay, whether wanted or not; it is merely part of business. However, there might come times in which you are short in cashflow that even a primary obligation like this one might represent an issue. Taking a bridging loan out would be a proper legal way to settle your tax liability.
Bridging finance is becoming ever more popular; it has much more positive aspects than what it does negative. However, carefulness is recommended. It is essential to have all the documents needed at hand, as well as to establish a clear/sound exit strategy. It is to assure the lender that you can repay the loan with its upcoming fees.
Borrowers should always remember that same as with a mortgage, the property may be at risk if it is not paid up to date. So maybe driving home and picturing yourself in the property you want might not be that complicated after all. Getting your hands on immediate cash might not be as difficult as you thought.
Be part of the easiest and most efficient way to borrow money in today’s financial industry. You won’t regret using this source, as long as you keep your numbers sharp and yourself organized.