A bridging loan, sometimes known as bridging finance, is a viable short term lending option for many businesses. It’s called a bridging loan for a reason – it acts as a financial bridge, helping you along to your next destination. It gets you from A to B, until you have money coming in to clear the loan.
Many companies opt for a commercial bridging loan because they can be arranged in a very short amount of time compared to other types of finance. They are also available up to very large amounts – up to £20 million from private and flexible lenders. Short term bridging loans are available to individuals or businesses, but are generally used for the same purpose.
What can a bridging loan be used for?
Generally, because bridging loans are a short term finance option which needs to be repaid within 12 months, they are used for property development or purchases. For example, if you want a quick sale of a property or need urgent funds for repairs or renovations, a bridging loan could help. Most people don’t have large sums of money saved up for property investment, but taking out a traditional loan can take too long in the property chain. To take advantage of investment opportunities, sometimes bridging finance is needed.
Bridging loans are a great option at auctions and lots of buyers complete purchases with bridging finance. A typical loan from a traditional lender would probably take too long for someone who wants to snap up a property at an auction.
Another option is property investment for a quick resale. If a buyer wants to make minor improvements and then put the property back on the market to sell within 12 months, a bridging loan can assist with the initial purchase.
What happens at the end of the term?
Before taking out a bridging loan, it’s important to understand the implications of such a short term loan. The finance term usually ranges from one to 12 months, and there will be security set up on the loan if you don’t repay it in time. There will also be a lump sum of interest added at the end of the loan to take into account.
There is another option – at the end of the loan, you can convert the bridging finance to a commercial mortgage if you have used the cash for a business property. This gives borrowers even more opportunities for repayments and further investments.
If you’d like to find out more about bridging finance and how it could help you, speak to our professional brokers.