What is a Bridging Loan?

A business bridging loan is a short-term financing option secured against property.

This property could be residential, such as buy-to-let apartments, or commercial, including offices, factories, or warehouses. Bridging loans can be utilized to purchase the property or to support other business purposes.

The name "bridging loan" reflects its purpose: to bridge a temporary funding gap. These loans are typically repaid quickly, often through the sale of the property or by transitioning to a longer-term financial product, such as a mortgage.

Loan terms can range from a single day to up to 12 months. Loan amounts generally start at around £25,000, with no maximum limit.

How Does a Bridging Loan Work?

With a bridging loan, you can usually borrow between £50,000 and £10 million. The amount available depends on the equity you hold, typically capped at 75% loan-to-value (LTV). The loan is secured against one or more properties to raise the necessary funds.

Repayment is often achieved by selling the property or securing longer-term financing, such as a mortgage.

For those looking to expand their residential property portfolios, InvestorBroker is here to help.

Short-Term Bridging Loans

Bridging loans are ideal for addressing urgent financial needs or seizing time-sensitive opportunities, such as buying property at auction. Speed is critical, with loans often approved and funds disbursed within as little as 72 hours under certain conditions.

Although large sums are involved, bridging loan providers conduct thorough checks and apply conservative lending criteria. However, these lenders can often make rapid decisions without the delays typical of traditional financing.

Who Can Qualify for a Bridging Loan?

Bridging loans are primarily targeted at landlords and property developers, though lenders focus more on the specific circumstances than the borrower’s profile.

Bridging loans are particularly suitable for:

• Fast property purchases: Funds can be made available within a week, much faster than traditional mortgage processes.
• Property refurbishment: For properties lacking basic facilities, like kitchens or bathrooms, bridging loans enable renovation and refinancing onto long-term solutions.
• Breaking a property chain: Loans can be secured against the property being sold, allowing you to complete a new purchase and repay the loan once the property sells.
• Auction purchases: With bridging finance, you can secure the necessary funds before bidding at auction, enabling timely purchases.
• Quick cash needs: These loans can cover immediate expenses, such as tax, VAT, or cash flow for business operations.

What Are the Costs of Bridging Loans?

The costs of bridging loans vary depending on your circumstances and the specifics of the deal. Monthly interest rates generally range between 0.7% and 1.5%, though more complex cases may see higher rates.

Additional fees may include:

• Arrangement fees: Typically around 2% of the loan amount.
• Exit fees: Often equal to one month’s interest.
• Surveyor and legal fees: Associated with property valuations and legal documentation.
• Penalty fees: If the loan exceeds the agreed term.

InvestorBroker can help you explore a range of bridging solutions, from high-value loans to 100% financing and property refurbishment funding. Let our experts use their network to find the most competitive deal for your needs.

Types of Bridging Loans

There are several types of bridging loans, tailored to different situations:

• Closed bridge loans: These have a fixed repayment term, offering lenders confidence in repayment schedules.
• Open bridge loans: These lack a fixed repayment date, ideal for borrowers uncertain about their repayment timeline. However, they often carry higher interest rates due to the increased risk.
• First charge bridging loans: Secured against an asset with no existing encumbrance, such as a fully paid-off property.
• Second charge bridging loans: Used when a property already has an existing mortgage.

InvestorBroker can guide you in determining which type of bridging loan is best for your situation.

Other Bridging Finance Types

• Debt bridging finance: Designed for businesses to cover short-term costs while awaiting long-term funding.
• Equity bridge financing: Often used by companies seeking to avoid high-interest debt, involving venture capital to provide interim capital.
• IPO bridge financing: Helps businesses cover the costs of going public, with the loan repaid from IPO proceeds.

Alternatives to Bridging Loans

Alternatives such as asset financing, invoice financing, development finance, commercial loans, secured loans, and commercial mortgages may provide a quicker or more affordable solution.

 

For more information on how a loan term works, contact InvestorBroker via WhatsApp today.