One of the most severe repercussions of the economic downturn of 2008 has been restricted access to credit.
Banks are reluctant to lend to consumers and businesses and mortgage lenders are demanding huge deposits from buyers before they will grant mortgage finance.
Restricted access to credit has, however, driven people to explore alternative forms of finance. Whereas in the past people would automatically assume that a bank was the best place to go to raise money, nowadays many are turning to a bridging loan company for the money they need.
Depending on what you need the money for and your personal circumstances, a bridging loan can be a better choice than a bank loan in several ways.
A common use for bridging loans is to purchase dilapidated properties. Many developers buy rundown houses, refurbish them and sell them on at a higher price, using the proceeds to repay the loan.
When you take out a loan of any kind, you will need some form of security. Banks will not lend you money if the security in question is in a poor state. If you intend to use the property itself as security, a bridging loan can be the best way forward unless you have significant cash reserves.
Bad credit history
High street lenders are reluctant to extend finance to anyone whose credit rating is not flawless.
Bridging loan companies, on the other hand, have no such issues. The key to securing a bridging loan is the property you plan to use as security and the equity contained in it.
Provided you have adequate security, a poor credit rating, sporadic income, County Court Judgements and other financial black marks can be disregarded.
That is why bridging loans are especially popular with those who have been declared bankrupt or have other financial difficulties.
If speed is of the essence, bridging loans can be a far superior option to a loan from a high street bank.
Applying for a bridging loan is a much quicker process than asking a bank for finance. Application forms for bank loans can run into several pages, making the whole process long-winded and tedious.
By comparison, bridging loan applications are processed much more quickly and if all goes well, you can have the funds in your account within two weeks.
To ensure your application goes smoothly, seeking advice on bridging loans may be a good way forward.
Some banks will only lend money for certain purposes and if your need is not on their list of acceptable uses, your application will be turned down.
A bridging loan company will have no such restrictions in place. You can use the funds to buy a property at auction, purchase stock for your business, buy a holiday home, to stop your home being repossessed, to convert and restore properties or to pay off debts.
As long as you have adequate collateral, a bridging loan provider will be indifferent about how you use the loan.
Another advantage of a bridging loan is that they are short-term loans. If you only need money for a few months, taking out a bank loan over a number of years makes little sense from a consumer perspective.
Bridging loans are usually provided for a period of 12 months, so if your needs are short-term, there are few options that can better them.
Bridging loans are not perfect and usually come with higher interest rates than bank loans. However, when you weigh up the pros and cons, you can see why many turn to bridging loan providers rather than banks.
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.
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.
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.
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.
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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