What makes people opt for bridging loans?

Thursday, 02 February 2012 02:38

Could bridging finance be the answer?

Could bridging finance be the answer?

If you need to borrow a large amount of money for a short period of time, your options are quite limited.

You could apply for a traditional bank loan, however, many banks have imposed such strict lending criteria on their loans that this option is a non-starter for many. Another option is to borrow money from friends and family, however, unless your relatives are fabulously wealthy, your chances of success are slim.

You could sell your house, car or other assets that you have, but in these difficult economic times, that may be easier said than done.

So if all these doors are closed to you, what options do you have left? One is bridging finance, which has become increasingly popular in recent years for a variety of reasons.

As previously mentioned, accessing finance from high street lenders has become all but impossible to those without gold-plated credit ratings, particularly if you want to borrow a significant amount.

When you apply for finance from a bridging loan company, your credit rating may not necessarily be a barrier to your chances of success.

Bridging loan providers often have flexible lending criteria and many will disregard your credit rating provided you can secure the funds against your home or other high-value asset.

This is one of the biggest advantages of bridging loans compared to traditional loans and a key reason for their increasing popularity.

Another reason why bridging finance has become a popular vehicle for many people is the fact that you can borrow significant amounts. Depending on the lender, you can borrow anything from £50,000 to £2 million provided you satisfy the lending criteria.

Accessing such a large amount of money is all but impossible with many of the other options on the table.

Bridging loans are commonly used to purchase derelict property. Developers turn to bridging loans to make such purchases as many traditional lenders refuse to provide funds for such transactions.

This works by you borrowing the money, using it to buy the property in question and then renovating it before selling it and repaying the loan.

Another popular use for bridging finance is to purchase a property before another buyer gets there first.

The reason why bridging loans are commonly used for this purpose is the speed at which they can be arranged. Provided you complete your application properly and provide all of the relevant information, you can have the funds in your account within ten to 14 days. As speed is of the essence in such a situation, bridging finance can be a good option.

You can use bridging loans for a variety of purposes, ranging from property purchases to credit repairs, so whatever your intentions, all that matters is that you have some form of property or land against which you can secure the funds.

There are many benefits to taking out bridging finance and more and more people are realising this.

However, bridging finance has its downsides as well. The biggest drawback is the cost of the loans. As they are designed to be a short-term funding solution, they come with high interest rates, which can be up to two per cent a month.

Also, if you opt for a loan with no set repayment date, known as an open bridging loan, you could end up owing significantly more than you borrowed if you fail to raise the funds to pay it back within a year or so.

Taking out a bridging loan is a big decision and to ensure you fully understand the pros and cons, seeking advice on bridging loans could stand you in good stead.
 

 

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  • Is a bridging loan right for budding entrepreneurs?

    Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.

  • Important questions to ask bridging loan companies

    Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.

  • Why bridging loans are only suitable for short-term funding

    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.

  • Banks vs. specialist lenders – which bridging loans are best?

    Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.

  • Can bridging loans work for those who only need small amounts?

    Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.

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