Bridging Finance - A Broker's Reference

The improving economic climate and growing availability of bridging loans have led to bridging finance becoming an increasingly appealing option for investors and businesses.

A beginner’s guide to bridging finance

Despite bridging finance becoming more prevalent in recent years, with a growing number of people appreciating the flexibility that it offers, many brokers, investors and borrowers are still unfamiliar with bridging loans and how they can be used.

UK leading bridging loan packager Y3S Bridging & Commercial has put together a comprehensive beginner’s guide to provide people with the information that they need to go forward and set up the loan. From bridging loan uses, time periods and loan amounts to repayments and interest rates, it provides a detailed overview of when to use bridging loans and what to expect when taking out this type of funding.

By using this beginner’s guide, brokers can help their clients make educated decisions when financing an investment, property transaction or cash flow issue, understanding how and when to use bridging loans to facilitate financial situations effectively.

The changing face of bridging loans

While bridging finance was once a niche product, it is being used in investments made across the UK with greater frequency. More borrowers are starting to recognise how they can apply short term loans, and are using the funding to benefit their property transactions and their businesses.

Popular for a number of purposes, bridging loans are being used to support commercial and residential property transactions, auction purchases and renovation and development projects. Meanwhile, businesses are using short-term loans when they require a quick cash injection.

In particular, the growth trajectory in bridging loan finance has arisen from growing confidence in the housing market. Investments in building and development initiatives and buy-to-let schemes have increased demand for bridging loans, as they give investors the opportunity to renovate and refurbish a property that could not have been financed by a standard mortgage from the outset.

What is a bridging loan?

A bridging loan is a short-term loan (12 months or less) that can be used by individuals and businesses for any purpose until permanent funding, or their next stage of financing becomes available, or they sell a property.

Fast, flexible and secured, it provides borrowers with the quick cash injection they require, which they may have been unable to secure elsewhere within a short period of time.

There are two types of bridging loans:

Closed bridge

The borrower has a set date when the loan will be repaid. For example, the borrower has already exchanged to sell a property and the completion date has been fixed. The sale of that property will repay the bridging loan.

Open bridge

The borrower sets out a proposed exit plan to repay their loan but there is no definitive date at the outset. There will be a clear cut-off point that the loan has to be repaid by.

What are the main uses of bridging loans?

Bridging finance can be used in both commercial and residential property transactions.

Home buyers, home builders, barn converters, landlords, property developers and investors can use short-term loans. Whether buying a property, building a property or raising funds for a refurbishment project, short term lending can be a viable option.

Bridging finance can also be used by businesses in need of short-term funding. Whether they need to raise capital, meet a business obligation or settle tax liabilities, it can help a business to resolve any emergency situation or take advantage of a new opportunity, for example, buying a new piece of machinery.

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