Bridging Finance
Clarity, Speed & Flexibility
Be safe in the knowledge that we will obtain market leading rates with reputable lenders as we are not tied to one lender. In principle decisions can be arranged with an hour from an initial call and funds can typically be made available within 5 working days. We have even arranged a completion from enquiry stage within 24 hours. Finance can be considered for any purpose (see below) and secured on all types of land or buildings.
A vital point to remember is that bridging loans will not suit everyone, however they can often provide a viable alternative to remortgaging for those looking to secure short term funds quickly. Indeed short-term specialist finance is certainly not the right product for those who are in any form of financial distress. On the contrary, it is designed for those who have some form of wealth through property assets and who wish to use bridging finance quickly and easily to extract liquidity from these assets.
Using bridging loans to finance up to 100% of a property
A classic case for this type of funding is where a property is being purchased at a discounted price. The bridging loan would be used to fund up to 100% of the purchase price, whereas conventional funding would be based on the lower of the purchase price or valuation. The bridge is used for a short period (a couple of weeks or months) whilst the property is refinanced onto more conventional long term funding.
The following examples represent some of the main uses for bridging finance:
Capital Raising
Loans to companies, trusts & pension schemes, secured against land or property. This allows opportunities to be taken up where large sums of money need to be raised in a short time.
Acquisition pending Planning or Development (Auction Purchases/refurbishments)
One of the most popular uses with funds available in 24 to 48 hours, ensuring that opportunities are not missed. Buying clients valuable breathing space while longer term funding is put in place.
Development Finance
A popular use for a bridging loan and one of the more common purposes. Funds can be drawn down at various stages during the project and this lends itself perfectly to development opportunities.
Corporate Recovery
Through offering products such as payment holidays or staged capital repayments, a bridging loan can ease clients' difficult financial situations through payments not having to be made immediately after the funds are made available. The funds and focus can be on corporate recovery, easing the immediate pressure on the company.
Tax Liabilities
When a tax demand is made it is often for an amount which cannot be accessed within the required time period. This is a perfect application for a bridging loan, which can be secured on the business premises and/or other property, with funds made available in short timescales.
IVA/Bankruptcy Annulment
A business may need short term funding to meet business obligations and payments or overcome financial difficulties such as bankruptcies and IVAs. A bridging loan can be provided as a second charge behind a mainstream lender, as well as being used as a first charge to annul IVAs or impending bankruptcy.
MBO/MBIs
Bridging finance is ideal in a management buy out/buy in situation, as there is frequently a short time frame to complete the transaction. Bridging Finance can be used in the interim period prior to the more traditional funding being put in place.
Payment of Inheritance Tax
A common problem when a client is left with a property is the payment of the inheritance tax prior to probate. Rather than selling the property at a difficult time of year or opting for a quick sale at a lower price, bridging finance can be used to settle the tax liability immediately and allow the property to be marketed properly at the right time of year, which could result in a significant uplift in the sale price.
Additional information on Bridging Loans:
What is a bridging loan?
A bridging loan is essentially a short-term loan that is often arranged within a short time-frame and may be made to an individual or a company and secured against residential or commercial property. The defining characteristic is that it is a loan that bridges the gap to an exit, which is usually a refinance or a sale of the asset. While a bridging loan may be arranged much quicker than could be achieved through a traditional bank, most bridging finance companies still apply sensible and relatively conservative lending criteria. Usually such lenders are smaller nimble operations and specialise in doing all of the usual checks that a bank will do but without the encumbrance of bank bureaucracy.
The term of the loan can be as short as one day usually up to a maximum of 12 months. Loan amounts generally start at around £25,000 with no maximum.
Is it expensive?
Short-term finance is always more expensive than longer term lending; however, with more and more lenders entering the market it is competitively priced. The interest rate charged will depend very much on the proposition in question; however, current rates range from 0.8-1.5 per cent per month, potentially with even higher rates on more difficult propositions. However with many different lenders in the market there is a wide variety of charging structures so, in addition to the interest rate borrowers may pay a variety of other fees to the lender:
Lender’s arrangement fee
A fee is usually charged by the lender for providing the facility and is typically two per cent. In most instances it can be rolled up into the loan.
Exit fee
This is a fee which may be charged by the lender when the loan is repaid. If charged, it is typically one months interest and is charged irrespective of whether the loan has run to its full term or not.
Surveyor’s fee
A fee will usually be payable to the firm hired to survey the property.
Legal fees
As with a standard mortgage, bridging finance must be processed with all the usual legal requirements. However in many cases lenders have in-house lawyers and their costs may be included within the lender’s arrangement fees.
Typical lending criteria
Bridging financiers will look at the credit profile of the borrower, the strength of the asset, the exit strategy and require that the borrower has a sufficient upfront cash contribution.
What are the risks?
It is essential to establish a clear exit strategy to ensure the loan can be repaid (either via sale or remortgage) to avoid paying high penalty interest rates and possibly losing the property to repossession if the loan cannot be repaid. Borrowers should remember, just like a mortgage, the property may be at risk if the loan repayments are not kept up to date.