For many individuals around the world, a form of flexible finance is invaluable both personally and professionally. The ability to extend one’s financial reach in order to take advantage of new opportunities is vital not only in business but also in everyday life, and there are few forms of finance which can provide a truly satisfactory solution for this need. Bridging loans are uniquely suited to offer high net worth individuals a flexible and responsive method of funding luxury asset purchases, and as a result are popular with those who have already made their fortunes.
Although bridging loans can provide a highly flexible way of maintaining financial adaptability, they are a form of secured loan. This means that if the borrower should fail to repay the loan in full they are liable to have their assets repossessed and sold as compensation; with this in mind, anyone considering a luxury asset finance bridging loan should ensure they consult their financial advisor before committing themselves.
To many people, the purpose of luxury finance is hard to fathom; surely the rich don’t need to borrow money - they’ve already got a fortune, haven’t they? While an individual’s net worth may indeed be high, they might not have sufficient capital on hand to fund large purchases at short notice; many high net worth individuals (often abbreviated to “HNWIs”) have a valuable portfolio of property, stocks, shares and other assets, but only a small proportion of their wealth is “ready to spend”. In order to fund the purchase of a new luxury asset, like a motorboat or classic car, they must either free up capital from one of their existing assets through its sale or turn to a bridging lender.
Bridging loans are an exceptionally flexible form of finance, and can best be summed up as high-value short-term secured loans; they offer the ability to secure a lot of money at short notice and for a short amount of time. Unlike a bank loan they may be secured on a wide variety of assets, and as such they have become hugely popular in the property development industry; they permit developers to get a project rolling without needing a mortgage, which is often unobtainable anyway.
Bridging loans act as a shortcut to bring a purchase forward several months. They are used to “bridge the gap” between a purchase being made and the funds to do so becoming available, hence the name. Although bridging loans are most often found within the property development sector they are by no means constrained to this field, and are also found in any circumstance where people need to generate cash quickly and temporarily. The needs of luxury asset finance are met by bridging lenders who can tailor their loans to meet the requirements of their clients in any situation, and who can provide unparalleled flexibility. Bridging lenders don’t just excel in flexibility, they’re also very fast workers; while a traditional bank loan can easily take weeks to arrange, bridging lenders are usually able to provide a decision within 24 hours with funds available shortly afterwards. By being able to act quickly, they empower their customers to move swiftly to seize opportunities that would otherwise be beyond their reach.
As mentioned previously, bridging loans differ from standard personal loans in that they are secured against existing assets. This has the benefit of enabling lenders to provide high levels of funding, since their loans are asset-backed, and since bridging lenders can take almost any form of asset as collateral it’s possible for HNWIs to use their diverse portfolios as security for new purchases. For instance, many specialist bridging lenders will securitise everything from handbags to fine wines, precious metals to classic cars, and this enables individuals to leverage their own personal wealth into capital for new projects.
Unlike many mainstream lenders, bridging providers are also highly flexible when it comes to the purposes of a loan. While many banks will be wary of lending on assets such as luxury yachts or cars, bridging lenders are able to meet the individual requirements of each borrower; there is no constrictive “checkbox” mentality in bridging lending, and bespoke financial solutions are available for each and every customer.
It’s important for anyone who takes out a bridging loan to consider the expense associated with it. Because a bridging loan is a short-term funding solution, the interest on these loans is charged monthly rather than annually. This means that there is a powerful incentive for borrowers to repay their loans as quickly as possible, since it can save a significant sum of interest. Before approving a bridging loan, a lender will always examine the borrower’s intended “exit strategy”, their intended method for repaying the loan. By ensuring that their borrowers have a reliable plan for repayment bridging lenders minimise the possibility of borrowers defaulting, and are able to operate safely and responsibly.
In the world of luxury asset finance, an exit strategy is likely to consist of personal income or ongoing sales. For instance, if the borrower is shortly to receive a significant sum as proceeds from their existing portfolio they may be able to use this as an exit strategy for a bridging loan. Similarly, if they’re in the process of selling a property they may decide to use the proceeds of this to repay the bridging loan.
As with any financial product, an application for a bridging loan should only be made after consulting a financial advisor. Applicants will need to submit details of the purpose of the loan, their intended security and their exit strategy. In many cases, bridging lenders will be happy to discuss individual needs on a case-by-case basis, and it’s often productive simply to contact a lender directly; it’s often straightforward to speak directly to a decision maker who can provide a simple, direct answer.
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