Question: What Are Bridging Loans?

The first question asked by many individuals when undertaking any area of property based finance is what are bridging loans?

Bridging finance products are a relatively unknown and complicated area of property finance but once understood it can be easy to see that the facility provided has many benefits over traditional forms of finance provided by the high-street banks.

So what are bridging loans? Bridging loans are financial products used mainly by property developers as a short-term facility that can be actioned quickly to raise finance on a property asset. The loan is usually secured as a first or second charge on the asset in question and should only be obtained for a short-time period with a clear cut exit to repay the loan.

Bridging facility products can be far more riskier and cost a lot more to take out than high street finance and most people go down the bridging finance route when their banks simply will not lend on the terms they wish, bad credit situation, or if you want to buy a poor condition below market value property for a property investment for which you would be unable to get a high-street mortgage.

Bridging products are offered as a loan against the value (LTV) of your property, with most companies offering the facility at 85-75% of market value. Most of the largest principle lenders in the UK can provide as low as £25, 000 with a view to lending maximum £25 million for the right project.

Bridging finance is provided from private clients funds usually from principle lenders in the UK, the top firms have vast funds for bridging and are usually backed by large institutions, wealthy high-net individuals or commercial banks.

Most bridging lenders will pick and choose what they will lend against and for how much they are willing to lend. Some lenders will only lend within the prime spots in the area. (major cities and metropolitan centres). So now we know the answer to the question what are bridging loans, we need to find a summary of what can they be used for.

Typically a bridging loan is used for one or more of the following:

• Property renovations
• Auction property buying
• Unexpected tax bills
• Land acquisition/refinance
• Home Improvements
• Short-term cash flow problems

And for many other reasons.

Bridging Finance is usually categorised as full status lending or non-status. Full status means you have to be a credit worthy individual and non-status means they lend to people with adverse credit.

Most of the bridging finance provided is done through non-status finance products as this should be the only reason to use secondary banks such as bridging lenders.

If you were an A class credit rated individual/business you would simply go to your bank and speak to your relationship manager to borrow the funds on a short-term basis.

Non-status bridging finance is when a loan is issued based solely on the project, there are no credit scores/checks that would affect the lenders decision. Non-status bridging finance is ideal for individuals with low credit scores, ccjs, arrears and credit defaults.