In business, it’s often true that the early bird gets the worm. Someone who’s able to think faster, work faster and act before their competitors will have a decisive edge when it comes to making deals, and therefore agility is a key factor in any successful business. In order to act quickly, however, businesses need to know that they can put finances in place at a moment’s notice; few organisations keep large stocks of ready cash on hand, as capital is always recirculated and reinvested. It’s therefore crucial to have a reliable lender that can quickly supply funds, allowing businesses to move quickly and decisively to seize opportunities.
Bridging lenders are amongst the most flexible and fast-moving finance providers there are. In this article we’ll discuss how finances for quick purchase can make the difference between a successful deal and a no-go, and how bridging is a powerful tool for both professionals and individual consumers. Before proceeding with a bridging loan it’s important to understand the full implications of this type of finance, so anyone considering a loan of this type should consult their broker for further information.
There are many different reasons why it might be necessary to complete a purchase quickly, and bridging loans are almost always the fastest option available to buyers. Firstly, this is due to the sheer speed at which bridging lenders work; unlike a bank, which can often take several days simply to provide a decision in principle, a bridging lender can often give a decision on the day (and sometimes even on the spot), and will usually be able to give firm approval shortly afterwards. This means that borrowers may make an offer almost immediately - there’s no waiting around for paperwork to be completed and red tape to be monotonously passed.
Bridging lenders also provide funds at an exceptionally fast speed, and finances can be available for drawdown in as little as a few days. This reflects the fact that many bridging lenders are in fact principal lenders working with their own money, and needn’t consult third parties before completing a transaction. The benefit to borrowers is significant; not only can they make a firm offer almost immediately, but they can also act extremely quickly and work to a very short deadline. This is invaluable in situations when time is of the essence, and enables borrowers to seize opportunities which would otherwise be beyond their reach.
Property development is a surprisingly fast-moving world. Although projects may take several years to come to fruition, the beginning steps are a frenzy of activity - the eventual outcome and profitability of a project is often decided in the first few months (or even weeks), as finances are arranged and payment structures defined. Being able to act quickly to secure a property before anyone else can often put developers in an ideal position, and starts a project off on the right foot. For instance, a developer might have the opportunity to purchase a property at a knock-down price when the current owner is forced to sell quickly; if they’ve received a significant bill, for example, or if they need to liquidate assets in a hurry. Being able to arrange a purchase at the snap of their fingers allows developers to put their offer in first, which puts them ahead of the pack.
Another common usage of quick purchase finance is in the world of auction buying. When a house is sold at auction it must be paid for in full within 30 days. Not only is this much too short a time to arrange a mortgage, but auctioned properties are also often unmortgageable anyway (hence their sale at auction, rather than on the open market). In this case, a bridging loan is one of the few ways a buyer can hope to fully finance their purchase. Because bridging lenders work much faster than banks, they are often able to complete the transfer of funds within just 7 days, which enables borrowers to meet the often constrictive timescales they must work to.
Bridging loans are not intended to be long-term financial solutions; as the name implies, they are meant to bridge the gap while a mortgage or other source of finance is arranged. Because of the monthly interest rates associated with bridging loans, most borrowers will want to repay their bridging loan as quickly as possible in order to reduce their overall costs, and so it’s important to have an “exit strategy” in place. This is a plan that outlines how the borrower intends to repay their bridging loan, and bridging lenders will always require that a detailed exit strategy plan is put in place before a loan will be approved.
Exit strategies can take many different forms, but in the case of quick purchase finance they are most likely to consist of a mortgage payment. The borrower will use the bridging loan to purchase the property quickly, then will seek a long-term mortgage plan to cover the ongoing ownership of the property at a lower annual cost. Upon receiving the balance of the mortgage, they will repay the bridging loan.
Bridging lenders will often provide borrowers with flexible loan terms that allow for a variety of payment structure to be put in place. One common fee structure is to defer all payments until the repayment of the loan, which eliminates ongoing costs from the loan and frees up the borrower’s cash flow. This is invaluable when the borrower has little capital left over to service a loan and is reliant on the eventual payoff from their project to generate income. Because this provides exceptional flexibility and allows developers to take on new projects with little to no capital of their own, it’s easy to see why bridging finance is such an attractive option. Coupled with the speed and agility of the bridging lenders themselves, this makes for a powerful financial package that’s a vital tool for property developers.
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