- Commercial & Residential Purchase
- Auction Purchases
- Capital Raising *
- Chain Breaking
- Refurbishment
- Speculative Deals
- Business Cash Injection
- Defective Property
* Capital raising funds can be used for many reasons including holidays, overseas property investment and tax bills etc.
Security
- Residential Property
- Commercial Property
- Land (with or without planning permission in place)
- Real Property (such as Plant machinery)
Bridging Loans carry a higher interest rate than standard mortgage lending and at the offer of loan stage there will be an agreed term of repayment, normally between one day and two years.
Bridging Loans are most commonly used when the financing requirement is urgent and beyond the timescales that a standard mortgage lender or bank could provide. In some cases Bridging Lenders can provide funds within 24 hours. Another common use of bridging finance would be to fund the purchase a new home prior to the existing property being sold.
Characteristics
Bridge loans will almost certainly carry higher fees which can include:
- Administration Fees
- Arrangement Fees
- Legal Fees
- Completion Fees
- Valuation Fees
- Exit Fees **
- Broker Fees (normally non-disclosed)
** A fee charged to redeem the loan, typically equivalent to one month’s interest payment.
As most bridging Loans are not regulated by the Financial Services Authority the above fees can vary substantially as they fall within no boundaries or guidelines, only competitive pricing.
Application
Bridging Lenders will consider loans to discharged bankrupts and clients with adverse credit such as CCJs and IVAs. They will lend to individuals as well as Businesses, Ltd Companies and tax efficient vehicles such as SPVs.
Variations
Bridging Loans are split into two main categories:
Closed Bridging Finance
At the time the funds are drawn down there is a firm exit in place to repay the loan normally within a short period of time. The most common use of Closed Bridging Finance would be the pending sale of an existing property on which contracts have been signed and exchanged/missives concluded.
Open Bridging Finance
At the time the funds are drawn down there is no fixed exit or repayment method for the lenders comfort, only an agreed maximum term that the loan can run for. Seen as higher risk than closed Bridging Finance it is therefore more expensive.
Other forms of short term finance:
Mezzanine Finance
Often a combination of debt and equity stake which is typically used to finance the expansion of existing companies. To secure mezzanine finance the business would normally have to demonstrate a track record in the industry with an established reputation and product, a history of profitability and a viable expansion plan for the business (e.g. expansions, acquisitions, IPO).
Bridging Finance Lenders
There are over 20 Primary Bridging Lenders in the UK that are able to lend their own funds and therefore set their own criteria of risk.
Private Finance
Should Bridging Lenders decline to lend, Private Finance debt and equity financers can be sort to provide funding for the examples above. This type of finance is normally very expensive.
Specific Uses
A Bridging Loan can be used as a Below Market Value (BMV) purchase instrument where the initial purchase takes place at the lower purchase price allowing a subsequent refinance application to be placed with a mainstream lender for borrowing based on the Open Market Value of the property with the purpose of releasing the difference in equity between the purchase price of the property and the higher resulting remortgage loan. This technique is popular with Professional Landlords.
Costs
Bridging Loans typically cost between 1-2% per month. Variable rates with margins over Libor can sometimes be applied as an alternative or an addition.
Find an Independent Bridging Finance Broker to give you all the available options.
For Niche Bridging Loan Finance, Professional Landlord Services and Interest Rate Hedging Solutions please visit www.benrandall.co.uk
