What is Bridging Finance?
The term ‘Bridging’ comes from the main use of this type of product; a short term funding option to ‘bridge the gap’ between property purchase & the provision of a main source of credit such as a mortgage or the sale of another property.
As a result, bridging loans facilitate the purchase of a property which would not otherwise be possible through usual funding means.
Bridging can be used for far more than this though, with property developers often taking advantage of the turnaround times to purchase, renovate and sell on properties in the time it takes many mainstream lenders to provide initial funding. Many providers can have funding offers in place in less than 24 hours with the money in the bank in a matter of days.
This speed plays in to the hands of the developers; but also those looking to purchase at auction where T&C’s state payment must be made within a set period. It can also save the day when property chains start to fail, stepping in at the last minute to keep things on track.
Flexibility is also a major advantage; funding can be offered on properties which don’t meet the stringent criteria often set in place by mortgage providers. Some for instance, can’t provide funding on a property which has a hiccup on a survey or with a lack of facilities in the case of a dilapidated renovation project; or even when the buyer has a lack of reliable credit history in their business.
As a solution, it is primarily aimed at landlords and early stage property developers, but is open to anyone. Many developers use bridging as a primary source of funding due to the speed and flexibility mentioned earlier; which when paired with their own ability to get on site and get the job done, keeps cash flow moving.
Bridging has other uses though; it can be used for tax liability purposes, allowing funds to be freed-up to meet tax demands, it can also be used to raise capital for the purchase of stock or equipment or even to change the use of a property in the case of refurbishing to HMO or student let.
The two key words when considering bridging finance. Without an exit strategy in place most providers will struggle to lend. That doesn’t necessarily mean you need to have a mortgage offer ready to pay (otherwise, why use bridging?). What it means, is a well thought-out plan and timescale to return the funding provided. This can come from the future sale of the property, the sale of another property, the acquisition of a mortgage or even an upcoming inheritance… as long as this is all in place, funding can be provided.
Now to the cons; the added flexibility and speed inevitably come at a price, with higher interest rates than standard high street lenders, as well as additional (often upfront) set up fees, valuation fees and legal costs. This explains why bridging finance is used as a very short to short term product with providers generally offering terms only up to 24 months.
All in all, and of course taking into account the higher fees, bridging can be a valuable service to those in the property market, particularly when many turn to credit card overdrafts with interest rates and penalty payments which make your eyes water!
I can appreciate that bridging finance is not everyone’s cup of tea, the higher rates and short term nature mean that it doesn’t fit most profiles, but for those who it does, it can mean the difference between a dream property and a missed opportunity.
The obvious choice
Our team are able to offer bridging with a loan to value of up to 75%, no upfront fees, a first or second charge taken on the property (a charge is when a lender such as a mortgage company already has a claim on the property in the event of default), a loan value of between £25,001 and £500,000, and a term of 1 week to 18 months. All with rates starting at just 0.95%.
Ashley Finance have been providing funding to SMEs for over two decades and treat each case on its own merits, considering all circumstances and credit scores.
Call our friendly team on 0161 233 6380 and see what we can do for your business.
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