We explain Bridging Finance for you
Our Trusted Lenders
We’re working with the best people in the industry to give you the best possible deals for your unsecured business loan.
Great, you’re all done!
We’ve received your details, one of our advisors will contact you shortly!
Want a call back?
Fill in this short form and we’ll get back to you, don’t worry we won’t hound you with calls.
What is a bridging loan?
A bridging loan is a short term loan used to ‘bridge the gap’ between buying and selling. Property bridging loans are an ideal solution for when you want to make a purchase but you’re waiting for funds to be available to you from the sale of something else. This type of loan can be a way of funding a project or property purchase (bridging mortgage).
When would I need a bridging loan?
Bridging loans can be used in a variety of circumstances, for example buying property, property development and renovation, investing in buy to let opportunities and tax payments. This type of loan can be used for a Tax loan, you may want to take out a loan for a tax payment when your tax is due at an inconvenient time or if you cannot pay it all at once. You can then make the repayment once you have adequate funds to do so. Similarly, commercial bridging loans can be used to bridge the gap and finance something quickly for a commercial building. Unlike a business loan, this type of loan is to fill a short amount of time between purchase and sale.
How much can be borrowed with a bridging loan?
Bridging loan companies offer an extremely wide range of loans depending on the individuals circumstances and exit plan. Lenders can offer anywhere between £5,000 and 25 million, sometimes much more depending on the individual and circumstance. Lenders will expect you to have a solid exit plan in order to lend you any amount of money.
Do I need to have good credit?
You do not necessarily need good credit to apply for bridging finance however, you will be considered higher risk if you have bad credit resulting in the cost of your loan being higher. Your credit report will give you a good idea of whether a bridging loan will work for you and your business.
How much will my bridging loan cost?
The cost of your loan is dependent on a range of variables including how long you’re borrowing for, how much you’re borrowing and your credit history. Bridging loan interest rate can be high due to the short time scale of the loan, with lenders charging monthly rather than annual interest rates. However, not all lenders charge monthly and some banks now charge standard interest rates on this type of loan. Other fees must also be considered including but not limited to arrangement fees, legal fees and exit fees.
Types of bridging loan
Open bridging loans
An open bridging loan is more flexible as there is no exact repayment date. The debt is usually paid once your funds become available however the debt is most commonly expected to be cleared within a year.
Closed bridging loans
A closed loan is typically cheaper than an open loan as there is less flexibility with your repayment date. A closed loan has a definitive repayment date based on when your funds are expected to become available.
Whether you choose to take out an open or closed loan, your lender will expect details of your repayment and how you plan to do so. This is often called an ‘exit plan’ as lenders will need to know how and when you plan to repay them. Without a realistic exit plan, you are unlikely to be approved for a bridging finance loan.
First charge and second charge bridging loans
With this type of loan, the lender will put a ‘charge’ on your property as if you do not make your repayment, they will take your payment from the sale of your property. This will be a ‘first charge’ if you own the property and have not taken any other loans out against it. However, it will be placed as a ‘second charge’ if you have taken out any other loans on the property. For example, if you property is sold to make repayment, the lender will take their payment second after your mortgage lender has taken theirs.
Second charge loans are typically more expensive as there is a higher risk for the lender and the chance of not receiving repayment is higher. Second charge loans also require approval from the mortgage provider of the property the charge is being placed on.
Unsecured vs secured loans
A secured business loan requires you to offer something you own to provide the lender with an option if you fail to make your repayments successfully, whilst an unsecured business loan allows you to borrow an amount of money without offering anything to the lender. When taking out an unsecured loan, the lender will base the amount they can offer you or your business on your finances. The amount you can loan with a secured loan is most commonly based on the value of your property or the estimated value of your expected funds after a sale or refurbishment of a property.
Pros and cons of using bridging loans
Pros of Bridging Finance
|Cons of Bridging Finance|
Fast property purchase – allows you to make your purchase before having the funds.
|Interest – The longer it takes to sell your property, the more interest will accrue on the loan.|
Buys time – gives you more time to get the best price on the property you are selling.
|Time scale – pressure to sell your property and make repayment by a certain time if using a closed loan.|
Avoids stress – Less pressure to sell your property on a time scale.
|Risk – Risking another property by taking out an unsecured/second charge loan.|
Standard interest rates – some banks now charge standard interest rates on the loan.
Alternatives to a bridging loan
Alternatives to a bridging loan
Remortgage – A common alternative is to remortgage your property. This is when you move your mortgage to another lender or to a different arrangement with your current lender. This can reduce your monthly payments or allow you to borrow more money, releasing funds for another deal or proposal.
Personal Loan – A personal loan can be a simpler solution to finance something personal such as a holiday, home renovations or unexpected expenses.
Refurbishment loan – Refurbishment loans – often referred to as property refurbishment finance, are another loan option for when you need to borrow funds to refurbish your property before selling or renting. This type of loan is calculated on the value of your property once refurbishment has been completed. Head to our page on refurbishment loans and answer a few quick and easy questions to start your loan application with us now.
Commercial Tax Loan – A commercial tax loan is used to help a business in times where their tax bill may have come at an inconvenient time or they may not have the funds to pay their tax in full. This type of loan prevents business’ from incurring late payment fees from HMRC. Your commercial tax loan can be paid direct to HMRC or to a bank account, benefits include adaptable, smaller and fixed repayments but as with any loan, it carries the risk of falling into debt if repayments are not made.
Business Loan – This is a loan designed to aid progression for a business, this could include equipment, paying salaries, office rent and more.
Complete a business loan application now to get a quote for your business.
This guide should help you decide if a bridging finance loan is the correct loan for you and your current venture. Here at UK Business Loan we do not offer this type of secured loan but we are able to offer help and advice on which type of loan is suited to yours and your business’ needs. Get in touch with us now to find out more information about bridging finance or start your loan application with us.