While considering taking out a loan, multiple finance options can provide you with the required benefits. Of these financing options, one commercial product that is high in demand is bridging loan. Let’s explore what bridging loans are and how they can be beneficial.
What are Bridging Loans?
Bridging loans or interim finance is a finance solution that is offered for a short-term duration. The main purpose of bridging loans is to bridge a gap in finance, e.g., sale and purchase, and these loans are repaid when a long-term or permanent funding option is available.
Earlier, bridging finance was mainly secured to fund property development, auction buying, and property purchases. Now bridging is used for several purposes other than property purchases.
Benefits of Bridging Loans
Bridging loans are on the rise because of the key benefits they are offering. These benefits are making bridging finance lead among all financing solutions.
Quick Access to Cash
Bridging finance is faster than other financing options. It can be arranged very quickly; it can typically be arranged in 24-48 hours. It can provide instant cash flow in times of emergency or when an opportunity is too good to miss. On the other hand, other financing options may take weeks or months to arrange finance. Therefore, bridging is an ideal option if you want instant cash flow for the short term.
Bridging is beneficial as it offers flexible lending criteria; it is flexible in various ways; they are as under:
Credit History: Clean credit history is not mandatory for getting bridging loans. The lending terms are flexible enough as applicants having bad credit can be considered for bridging loans if they deposit additional assets or security.
Flexible Term Duration: These loans can typically be repaid in 1-12 months, but their flexible terms allow extension in term duration. This term duration can be extended up to 36 months maximum, depending on the bridging lender.
Flexible terms for interest payment: Interest rates of bridging finance are high due to their short-term nature, but interest can be paid at flexible repayment terms in a lump sum if you opt for rolled-up or retained interest.
All types of Property: Due to the flexible nature of bridging loans, they can be secured against all types of property, whether commercial or residential, for instance, houses, flats, maisonettes, shops, mixed-use properties, commercial units, offices, care homes, leisure complexes, farms, land, building plots, development land. The property is acceptable in any condition, such as dilapidated, uninhabitable, or unmortgageable. Bridging loans can be taken for property development or buying land without planning permissions. These loans can be secured against a non-standard or unusual construction
Multiple properties as security: Multiple prpoperties can be used as security. One bridging finance UK facility can use one or more properties as security. This can be on a first or second-charge basis or a combination of both; for example, to buy a property, the full purchase price may need to be raised. Therefore, a bridging loan could be set up to use the first charge on the property to be purchased plus a second charge on another property that already has a mortgage on it but has equity available.
No Proof of Income
Other financing options require extensive proof like a good credit score, income evidence, lending history, and prior experience in lending; bridging finance is asset-backed finance; therefore, there are no lengthy checks, and the loan is secured against property.
No Additional Fees
Bridging finance has high-interest rates but has no additional fees, such as an early repayment fee (when you repay before the term ends) or exit fees.
Bridging is diverse; these short-term loans can be secured for residential (regulated bridging) and commercial (unregulated bridging) purposes.
Any Loan Purpose
Traditional financing offers loans for a limited time with no flexibility in their terms. Whereas bridging finance providers do not mind what you intend to use the money for, as long as you can prove that you can pay it back through your strong exit plan.
What are the Disadvantages of Bridging Loans?
Although bridging loans have benefits, but they have some limitations as well; these include:
Bridging loans are offered for the short term at higher interest rates than other financing options. If they are used for the long term, they can be unaffordable and expensive as more interest will pile up and can overburden the borrower.
These short-term loans are secured against property, and failing to repay the loan may result in repossession of the property, and you will have to face financial loss, and your credit history will be damaged.
Bridging loans/ p2p lending is used to bridge the payment gap and is an ideal financing option due to its quick funding solution, flexibility, and diversity.