Thought to have originated in the late 1960s, the bridging finance sector has become one of the most fast-moving and expanding environments in which to work, coming into its own particularly over the last decade or so. Despite this, the concept of bridging finance can still cause confusion for first -time borrowers. This article explains the basics of what can often be the perfect short-term funding option.
Bridging Finance – a beginner's guide
In today’s post Credit Crunch and Brexit climate, where Banks are being told to re-capitalise rather than lend, many SME’s and property developers are faced with finding alternative routes of finance that can be facilitated in a short-period of time which is where bridging finance comes in.
Once a very niche industry, bridging finance has quickly become mainstream.
What is bridging finance?
Bridging finance or a bridging loan is often used in order to ‘bridge the gap’ between buying a property and selling a previous one. Bridging finance can also be used as a short term method of assisting with purchase of a property at auction, which requires payment immediately.
Opting for bridging finance can be beneficial for those needing to borrow money fast for an interim period for a property transaction. A bridging finance loan will usually last no longer than 12-24 months and acts as cash injection for the period of time in which it is required.
Why use bridging finance?
The method of bridging finance is on the rise and the number of those taking out bridging loans is growing exponentially. One of the biggest advantages to using bridging finance is the quick fix that it provides. While bridging finance is often used for residential and buy-to-let properties this funding method can also be used for commercial properties. Expert bridging finance solicitors will have come across an array of cases and can advise on the range of scenarios that could benefit from a bridging finance loan.
How does bridging finance work?
There are a number of specialist bridging finance loan companies in the market and many high street lenders offer the service. Bridging finance can be arranged within a matter of days and you may be able to often borrow up to 75% of the property’s value.
When it comes to agreeing a bridging finance loan, lenders will look at affordability. Bridging finance is not approved on the basis of income multiples but lenders will examine the loan to value ration; any revenue stream, together with the proposed exit.
How do I go about getting bridging finance?
Some bridging finance lenders will insist on a qualified bridging finance solicitor advising the borrower or security provider on any guarantee. Querying this with your bridging finance lender as soon as you look into making an application will prepare you for the necessary arrangements to make when choosing the right bridging finance solicitor.
Bridging finance solicitors are not authorised to provide advice on bridging finance. However, if you require legal advice in respect of Bridging Finance, please contact our James Goff.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.