Differences between commercial and personal bridging loans

Thursday, 30 June 2011 12:30

Differences between commercial and personal bridging loans

Differences between commercial and personal bridging loans

Bridging loans can prove to be an extremely flexible and useful financial tool and can be put to equally good effect if you're searching for funding in order to meet either individual aspirations or those of your business.

However, you should not fall into the mistake of believing that bridging loans are a one-size-fits-all product. Depending on your reasons for wanting to take out such finance, you will either have to obtain a personal or commercial loan.

There are several differences between the two, so bear in mind what you are hoping to achieve upon receiving one before you start going about completing a bridging loan application.

Indeed, if you believe that you have found your dream home you may be inclined to take out a personal bridging loan as they can offer the short-term finance you require to ensure that it is not snapped up by another buyer.

There are two types of personal bridging finance available and if you have come across a property you want to buy but are yet to put your current home up for sale than an 'open' loan might be for you. This can quickly give you the money you need to ensure that you can get your property.

However, if you've already arranged for your existing property to be sold but there is a delay in the transaction that means the cash required for your new house is not forthcoming, you will want to take out a 'closed' loan.

Whichever type you choose, this kind of bridging loan can be a great way for you to raise the funds required to advance up the property ladder but this is by no means their only purpose. Indeed, people have turned to them when faced with a divorce settlement, urgent tax bills or in an attempt to consolidate debts, so bridging finance may hold the answers to whatever you wish to achieve in your personal life.

However, if you're keen to realise the benefits of bridging loans in a professional sense than you will have to apply for a commercial finance product.

As their name suggests, commercial bridging loans can only be used for business purposes so you will not be able to take them out to fund buying a residential property for yourself.

Instead, they can be deployed as a means of purchasing industrial developments – for instance, offices, factories, warehouses and workshops – although unlike their personal counterparts there are no open or closed commercial bridging loans, they are altogether a more cohesive product.

One similarity that personal and commercial bridging loans do have, however, is that they do not only have to be taken out to acquire property. Businesspeople have used the latter in the past to provide a quick cash injection into their organisation or to buy out a partner.

When it comes to applying for a commercial bridging loan it is not just enough for you to enter your own name on the form, you must also remember to put the title of the business intended to receive it and what kind of business it is, be it a limited company or otherwise.

Typically, commercial bridging loan rates are lower than personal counterparts, however, depending on the amount you wish to borrow and other factors, this may vary.

Whatever kind of bridging loan you are after, make sure that you seek out expert advice to ensure you are not only getting a suitable product but also one that offers a competitive rate of interest and a degree of flexibility over your repayments.



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    You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.

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