Loans

The Benefits Of Bridging Loans 

Derelict house surrounded by countryside in need of repair

The UK’s bridging sector has bounced back after a turbulent 2-year period. It has now become a popular loan option among homeowners who want to do property improvements and established investors.

So, why has bridging finance’s popularity reached an all-time high? What has made people pay close attention to bridging specialists of late yet there are many other loan options available?

1. Quick Access to Funds 

One of the major benefits of bridging loans is the fact that you can get money within the shortest time possible. Its processing time is shorter than other loan options like a conventional property loan or mortgage. It is not uncommon to wait for weeks or months for your mortgage application to be processed. As such conventional loans such as when a person needs money for time-critical purchases like picking up a property at an auction.

When you apply for a bridging loan, you will get money a few days after your application. Partnering with an experienced broker when applying for this type of loan will streamline the application process. Therefore, bridging finance is the best option for those who want to get money within the shortest time possible.

A conventional loan should be used for a specific purpose. This means that the funds you get should be used for the purpose you indicated when applying for the loan. However, with bridge loans, the lender is more interested in your ability to repay the loan on time than how you will use the funds. 

Even though you will have to indicate how you plan to use the money you will get, you can use the money for any legal purpose. How you will use the money is up to you as the lender will not ask you how you used the money they gave you. 

Most of the people who apply for bridge loans use the funds to buy buy-to-let properties, buy land, pick up homes and businesses premises at auction, fund renovations and refurbishments, raise business capital and for chain break purposes.

3. Bridge Loans Often Have Flexible Lending Criteria 

The criteria that a person has to meet to be eligible for a bridging loan are very flexible. Traditional loans and mortgages often have a binary application process with simple ‘yes or no’ credit and finance checks which have no room for manoeuvre. With bridging loans, the loan applications are personally accessed by way of individual merit and the decision is made accordingly.

With this type of finance, issues such as a poor credit score, no proof of income and a history of bankruptcy will not make you ineligible for a bridge loan. Eligibility for these loans is assessed mainly on the basis of security that is the assets you use to get the loan. 

The lender will also need evidence of a viable exit strategy showing when and how you will repay the loan. If the lender feels like you can repay the loan in full, you will get the funds as the lender will not require anything else from you.

4. Most Property Types Can Be Used As Security

Most mortgages and loans can be fairly restrictive when it comes to eligible assets. For instance, it is often impossible to take out a mortgage against a commercial property that needs major structural repairs or an uninhabitable home. Bridge loans, on the other hand, are not restrictive and you can secure loans against almost all kinds of properties including residential, commercial, and semi-commercial properties, uninhabited properties and most types of land.

As such, bridging loans can be ideal for those investors who want to flip properties for profit. One of the common purposes of bridge loans is buying properties in need of repair, renovating them and selling them at a profit. This is something that cannot be done with a mortgage or conventional loan.

5. The Loan’s Interest Repayment Options Are Flexible¬†¬†

Bridging loans are strictly meant to be short-term loans. You need to repay the loan you borrow as a single lump-sum payment within 12-24 months after the date of the agreement. All aspects of the agreement will be drawn up from scratch for the benefit of the lender.

Keep in mind that every bridging loan agreement is unique and tailored to meet the preferences and requirements of the lender and the borrower. As a borrower, you can make interest payments every month or at the end of the term after paying the full balance. You can also transition a bridging loan to a more conventional long-term loan (this is popular among buy-to-let investors).

About author

Master of the budgets. Provider of the tips. Author and owner of DumbFunded.co.uk.
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