Taking out a personal loan is something that many people in the UK have considered at one time or another, and the financial flexibility that comes with this form of loan is sometimes exceptionally helpful. The many varied circumstances which can make personal loans an attractive proposition demand a particularly adaptable lender that can meet hugely different customer needs. In a sector that requires lenders who can alter and adapt their lending products to meet widely differing requirements, bridging lenders are some of the best-placed financiers to provide ideal solutions. Because bridging finance may be used to create an injection of capital at short notice, it’s a perfect solution for borrowers who need to quickly generate cash without being constrained by the restrictions of unsecured lending.
Throughout this article, we’ll be discussing the needs of personal loans, and why bridging finance is a great fit for these requirements. It’s important to bear in mind that as with any lending product, there is a price tag attached to a bridging loan, and if it is not repaid in full then the consequences can be severe; anyone considering a bridging loan must make sure to consult their financial adviser before proceeding further to ensure it’s the right answer for their situation.
A personal loan is a particularly variable form of finance, because the needs of consumers are unique. Although there are some situations which personal loans are commonly used for, such as home improvements or the purchase of a new vehicle, each and every borrower will have different needs and requirements. For instance, one borrower might need a loan of £10,000 to cover the cost of repairing their house before sale and may need to repay this from the proceeds of the house sale, which could take several months. Another borrower might be in need of finance to help them cover a capital gains tax bill on the increased value of their assets, and though they will be able to repay this through their salary they simply can’t pay such a large lump sum in one go.
Borrowers might have different needs, but their requirements will all vary in a few key aspects; the amount of money they need, and the length of time they need it for. Regardless of the specific intentions they have once they’ve been granted a loan, their requirements will usually only be relevant to lenders within these two respects.
Bridging lenders can provide an excellent option for personal loans because they are able to meet the needs of the market; their customers need access to flexible finance, and bridging loans are amongst the most flexible forms of funding available. Crucially, bridging lenders are able to act flexibly within the two dimensions where the needs of borrowers vary widely; the amount of money, and the amount of time. There is virtually no ceiling on the amount of money that a bridging lender can provide, and a typical bridging lender allows customers to set an initial loan term of up to 12 months; if this isn’t long enough, there are often options to refinance and extend the loan arrangement.
In addition to this flexibility, bridging lenders are incredibly fast workers; a loan can go from application to approval in as little as 24 hours, with funds becoming available shortly afterwards. This means that there’s no lengthy application process or red tape to become tangled in; finances can be arranged quickly and confidently in as little as 7 days.
There is one crucial difference between a bridging loan and a standard mainstream personal loan; a bridging loan is always secured on an asset of some description. This security enables bridging lenders to provide such a high level of finance in so many varieties; because they have the ability to reclaim their costs by repossessing the borrower’s collateral, they can offset some of the risks inherent in providing such large and flexible loan products.
Bridging lenders are again very versatile when it comes to securing a loan. While a bank may only permit customers to refinance their property through a remortgage, bridging providers will be able to accept many different forms of asset as collateral. This can include vehicles or property, or even financial assets such as pensions plans, stocks and shares. This versatility enables bridging lenders to offer financial services to borrowers in many different circumstances.
There are two forms of security that can be used to secure a bridging loan; first charges and second charges. These are essentially the priority that a lender has if the asset is to be repossessed; if a lender will be the first creditor to reclaim their loan from the asset, they are said to have a first charge. Otherwise, if they are second in line, they are said to have a second charge, and because it will be harder for them to guarantee they’ll make their money back a second charge security is less attractive. A common example of a second charge loan is a bridging loan secured against a property on which a mortgage is already secured; if there is already an existing loan secured against a property then the first lender will always take priority.
In addition to providing smaller-scale personal bridging finance, there are certain specialised lenders who are able to provide financial solutions for high net worth individuals. These customers typically have a great deal of wealth tied up in assets, but may need to free up some capital. This can be for a variety of reasons, for new purchases or to settle outstanding debts, but the flexibility of bridging loans is also highly valuable to these individuals. The ability of bridging lenders to accept many different forms of asset as collateral enables them to provide high-value short-term loans to high value individuals, and there are lenders who can accept everything from classic cars to handbags as collateral.
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
Most lenders will accept security on residential, commercial, and mixed residential and commercial properties. Some will accept security on land with planning permission and some even on purely land or other assets.
A bridging loan is regulated when it is secured against a property that is currently occupied, or will soon be occupied, by either the borrower or an immediate member of their family. All bridging loans that enable the commercial acquisition of a property or for funds to be raised exclusively for business purposes are not regulated by the Financial Conduct Authority (FCA). The split between regulated and unregulated bridging loans is roughly 50/50 now.
Nearly all lenders will charge a valuation fee which covers the cost of surveying your property and determining its value. Most will also charge an arrangement or facility fee to cover the cost of setting up a loan. This is usually around 2% of the loan amount. Finally, prior to completion of your loan, most lenders will also charge a legal fee, usually charged at a set rate, and used to cover their legal fees for completing the loan. Valuation and legal fees are usually charged up front whilst administration and arrangement fees are often built into the terms of the loan.