One of the most important financial tools available to modern investors and developers is the bridging loan. This type of finance provides a vital link for many high-value transactions, and is crucial to the property development industry. Unregulated bridging loans are widely used for commercial purposes, and are well suited to an enormous variety of different needs.
First of all, let’s explore what a bridging loan is. Simply put, a bridging loan helps to “bridge the gap” while long-term financial solutions are found. Let’s say you’re a property developer looking to purchase a promising building for renovation. You agree on a price with the seller, but they need the money in just a few days; there’s no way your bank will hand over the hundreds of thousands (or even millions) of pounds you need in that space of time. With your own capital tied up in equity you have few options for finishing the deal. Here’s where bridging lenders come in.
A bridging lender doesn’t look at how much you can repay each month; they look at your exit strategy. This is how you intend to repay the money they lend you, and there are three main ways to do so:
The lender will look at your experience as a developer and the potential returns on your new project. If they decide your exit strategy is solid, they’ll approve the loan and you’ll receive the money when you need it. Because they’re supplying funding to meet a short-term need, bridging lenders can work a lot faster than banks; there are far fewer boxes to check and forms to fill out. In addition, many bridging loan providers are principal lenders, so they don’t have to get the go-ahead from someone else; if they decide the loan is viable, there’s no red tape to stand in the way.
Most bridging lenders can have money in your account within a week, but if you need it faster there are many lenders who can get it to you in a few days. Some lenders can even get you the money overnight if necessary, enabling you to close the deal and move forward with your project.
A typical bridging loan will last for between 1-12 months, with interest charged monthly. In most cases, interest can either be “rolled up” into the final repayment or serviced over the course of the loan. Many lenders offer high-LTV options to their clients, with up to 100% LTV available if additional security is provided.
Bridging loans can be used for almost any purpose, including the purchase of your own home. This is useful when a property chain breaks down, because it enables homeowners to proceed with their purchase even if they haven’t sold their own home yet. If you’re using a bridging loan to buy the home you’ll live in, then you’ll need a regulated loan. These loans are subject to strict criteria that limit the terms they can be offered under. Bridging loans can be expensive, so this helps to protect unwary homeowners from taking out loans they can’t afford.
For the majority of commercial purposes, though, unregulated bridging loans are ideal. There are very few restrictions on the terms that can be offered, which enables lenders to meet any requirements their clients have. There are plenty of circumstances where a borrower might need exceptional terms, or have a unique situation, and the freedom to alter lending requirements is incredibly valuable.
While most unregulated bridging lenders are not subject to oversight by the FCA, there are many industry organisations that seek to promote healthy, reliable lending practices. Groups like the National Association of Commercial Finance Brokers (NACFB) and the Association of Short Term Lenders (ASTL) hold their members to high standards of practice.
Bridging loans are exceptionally flexible, and there are very few things for which bridging finance is not used. However there are some situations where bridging finance is particularly well-suited, and can commonly be found:
There are plenty more ways in which unregulated bridging loans can be used, but this list shows just how flexible this type of lending is.
The best way to find an unregulated bridging lender for your project is to contact a broker. These experts will work out which lenders are best-suited to meet your needs, and which ones have the appetite for lending on your project. Because bridging lenders are so flexible it’s absolutely crucial to meet the right one; you’re far more likely to secure favourable terms by working through a broker than you are by going it alone.
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