Bridging Loans

There are a number of specialist lenders who will provide short term finance against property, on both an open and closed bridging basis.

Bridging is typically non status, with loans provided purely against the property value, although the lender will want to see interest serviced each month, and to know how and when the loan will be repaid.

Traditionally, bridging finance has been used to fund the purchase of a new property before the old property has been sold. The bridging company takes a first charge over the new property and a second charge over the old one, often allowing the full purchase price to be released.

Whilst this is still a core use for bridging finance, the product has evolved over time, and is now a powerful financing tool in the following situations ;

• Property purchased at auction.
  You may need to complete the purchase quickly (sometimes within 14 days), and it is highly unlikely that a traditional lender could provide funds this quickly. A bridging loan enables you to complete the transaction then refinance in a more sensible timeframe.
• Your mortgage offer is revoked.
  This is becoming more common, and happens for a variety of reasons. Bridging finance enables you to complete your purchase on schedule (perhaps avoiding expensive penalties), then arrange a new term loan afterwards.
• Purchase at an undervalue.
  By moving very quickly, you may be able to buy a property below true market value. A bridging loan is based on the market value rather than the purchase price, so could enable you to borrow up to 100% of the purchase price. This is markedly different to a conventional commercial mortgage lender, who will lend a % of the value or purchase price, whichever is the lower. However, when refinancing your bridging loan, the term loan will be based on the market value, enabling you to repay the bridge in full and preserve your capital. Strange but true!
• Retentions.
  Your term loan lender may insist on retentions whilst certain improvements are carried out, restricting your available capital. A bridging loan will enable you to borrow the full loan amount, carry out the required work, then refinance when the property is acceptable to your primary lender.

In summary, bridging finance is a very flexible, and under-used, form of finance that can be arranged extremely quickly, and offers businesses breathing space whilst clients sort out their longer term funding.

Select Business Finance has access to a wide variety of bridging funders, who can offer funding against both commercial and residential property, and can progress an application from start to drawdown in a matter of days.