A bridging loan is a short-term and flexible loan which is financially secured against the property, having borrower consenting for pay back the loan as well as increased interest on a future, shorter-term date. This form of temporary financial support is typically used for providing a financial “bridge” to the borrower whilst they wait for another loan to come through – at which point they can pay the bridging loan off in full. If you are thinking about applying for the bridging loan as a business or company then read the guide below for better understanding how they work as well as some possible advantages to using them.
Please note that this guide was inspired by www.bridgingexperts.com who are a UK based bridging loans broker. Check their website for a fuller explanation of how commercial bridging finance works in the United Kingdom market.
An Overview of the Process Involved
Commercial bridging loans are normally used for supplying large funding for the buying of new commercial property. It has become an ever more popular option for companies which have limited financial sources or who aren’t able to get a traditional loan to come through on time from their normal bank or lender – this is particularly prevalent since the beginning of the global financial crisis. The bridging loan can help borrowers in different situations as they may not be able to borrow from banks based on standard repayment terms and loan contract agreement schedules.
Most commercial bridging loans are set for a borrowing term of less than 12 months. Even though the loans are not overly favorable for most borrowers due to the higher interest rates, the economic crisis has still meant the prices have dropped dramatically to below 1.5 % per month. After loan has been taken, the borrower will usually then wait for their standard loan to come through from a bank, at which point they can pay the bridging loan off in full.
Who Can Get Commercial Bridging Loans?
Anybody who passes the relevant credit checks and is able to present a feasible plan for repayment can borrow money using bridging loans. Usually, bridge loans are taken out by commercial or residential property buyers. The funding can also be used for individuals who want to purchase property, restore it, and then put it back on the market to gain a large profit – which can help to repay the loan too. Mostly, bridging finance is perfect for companies that require some additional cash flow for breathing room whilst in the process of arranging long term finance or finalizing a property sale.
Benefits vs. Drawbacks
Commercial bridging loans can be extremely good for offering flexible finance or for shorter term opportunities that require quick funding as well as provisional cash injection. Most bridging loans will be available as early as 48 hours following loan acceptance which is what sets them apart from standard bank loans.
Bridging loans have proved to be popular with companies that struggle to get normal finance so they can use them if they have been rejected by more high street and well known lenders. Even though the bridging finance broker will check the borrower’s financial position, it’s not as likely to be as difficult to get approved as it would be from a traditional bank or mortgage lender.
However, be warned as commercial bridging loans do come with much higher interest rates when compared to other forms of loans available. If the borrower does not pay the bridging loan off during the agreed time period then there can be some very larger additional interest rates that will kick in.