Bridging Finance refers to a short-term loan borrowed either by an individual or a company and arranged within a short span of time. The loan is secured against either commercial or residential property. Such loans are usually borrowed for arranging funds quickly or to bridge a gap between buying new property and selling an existing one.
Bridging finance companies can lend funds for a term of 1 day to 12 months to 3 years. Generally, bridging finance companies avoid bureaucratic processes of traditional banks. Decisions about loan approval are quick, sometimes within a span of few hours and funds are usually released within 72 hours.
Who is likely to consider bridging finance?
Bridging finance is meant for businesses as well as individuals who want to arrange quick and large funds for their funding and are willing to pay high interest rates. Professional landlords, property developers, investors in real estate and individuals caught between buying and selling property can consider bridging finance.
Why do people consider bridging finance a good option?
Bridging finance loans can help you to raise finance quickly. These loans can help in refurbishing a property or finish a real estate development project. In some instances, bridging finance can be used for completing auction deals, raise a deposit for purchasing residential or commercial property.
At times, an established bank or reputed finance company may not be willing to fund the purchase of a particular property for some reasons. This is where bridging finance companies step in.
Bridging finance can also be used when an individual wants to buy a property while he initiates a sale for his own property. If the sale is delayed, bridging finance helps to fill the gap.
What are the other expenses involved in getting bridging finance?
To begin with, these loans are expensive as the interest rate is higher than that of regular property loans. Different lenders charge different rates of interest. So, you need to study the market and choose the best lender.
A lender’s arrangement fee is charged for providing the loan and is usually two per cent of the loan amount sanctioned.
An exit fee could be levied by the lender when the loan is repaid. Usually, one month’s interest is charged.
Surveyor’s fee is charged by the firm that surveys the property.
You also need to take care of legal fees for any legal procedures that your mortgage or property may require.
What is the risk involved?
The high interest rate is the first thing you must keep in mind. Secondly, there remains the possibility of losing the property if the loan is not repaid is applicable to bridging finance loans just like in the case of a mortgage.
What criteria do the lenders check?
The borrower’s credit profile, the value of the mortgaged property, the exit strategy and loan repayment capacity are thoroughly checked by the lending company. Although lending companies do not adopt the lengthy and bureaucratic banking processes, they ensure the borrower is eligible before approving the bridging loan.
