What is bridging finance?

Whether you’re an individual looking to purchase a new property when you haven’t sold your current property yet, or a developer needing to move on to the next investment project when your current development isn’t quite finished, you may be looking for the best type of property finance to help you bridge this gap.

Fortunately, amongst the many finance options flooding the market, a bridging loan can provide this exact function. If you’re new to bridging finance and aren’t sure how this type of loan works, this blog explains the basics of bridging loans and how they could help you.

What are bridging loans?

In simple terms, bridging finance offers a short-term loan to help cover the gap between selling an existing property and buying a new one or beginning a new development project.

Existing assets are used as security to borrow funds to make a new property investment without having to wait and miss deadlines or opportunities, which is useful when you aren’t able to use funds from selling the current property if you’re still in the process of finishing or marketing it.

Bridging loans are therefore ideal for helping property investors to fund their projects quickly when standard loans and mortgages aren’t suitable. Funding from specialist lenders is typically available much faster than it would be from traditional lenders, and there is often more flexibility with interest and repayment methods, too.

What can bridging finance be used for?

As an alternative form of finance that provides more flexibility and affordability for homeowners and property investors, bridging loans can be used for a range of purposes.

Though it’s most often used by developers and landlords for private residential and commercial use, almost anyone can apply for bridging finance for reasons such as:

• Buying a property when there is a gap in the sales chain (e.g. extending a property portfolio or moving premises)
• Purchasing a property at auction (needing to complete within 28 days)
• Securing a site or property that requires renovation, refurbishment, or conversion work
• Investing in a small refurbishment project for buy-to-let purposes
• Requiring urgent capital to finish a current project or fund the next one (when conventional lines of credit are unavailable)
• Refinancing as part of an exit strategy for cheaper funding with reduced interest liabilities

Of course, this list isn’t exhaustive – bridging loans are adaptable enough to be adjusted to most situations where short-term property finance is needed.

However, it’s important to remember that this is not a long-term solution, and is only intended to aid in the process of selling current assets, as the proceeds can then be used to repay the loan.

How do you get a bridging loan?

As a more specialist form of finance, high street banks typically won’t offer bridging loans, and you won’t find them on comparison sites – they are usually facilitated by brokers.

The bridging loan application process can, of course, vary from one lender to another, but it should generally work in the same way as any other property loan application:

• Bridging finance enquiry is submitted
• Indicative terms are issued (following receipt of information and subject to credit approval)
• Decision in principle (DIP) is issued (subject to valuation and due diligence)
• Legal terms agreed and legal paperwork issued
• Funds issued (loan drawn down) as soon as possible

Similarly, eligibility criteria for bridging loans can also vary between lenders, as approval can depend on different loan purpose and credit history requirements. However, in most cases, the information you’ll need to provide with your application includes:

• The amount you want to borrow
• Details of the property being acquired (including purchase price and estimated value)
• Information about the borrower
• A breakdown of outstanding work (including estimated timescale, cost, and end value)
• A plan for how the loan will be repaid

The more information and documentation you can provide and the faster valuations can be carried out, the faster you could be approved, and the sooner you could draw down the funds.

Do you need bridging finance?

If you’re in need of a short-term finance solution that can provide the funds you need right now to carry you over until more long-term finance can be arranged, a bridging loan could be the answer you’ve been looking for when traditional lenders have let you down.

Should you need more information about bridging loans to decide whether this option is right for you, contact us at ABC+ Architects Certificate. We would be happy to discuss how a bridging loan could work for your circumstances, or suggest any of the other finance methods we offer that may be more suitable if necessary.

Get in touch by calling 0161 928 8804, sending a WhatsApp message to 07729 647 493, or emailing info@architectscertificate.co.uk and one of our advisers will speak with you shortly.