Bridging Finance

What is it? How does it work? Is it right for you?

Let Landmark’s guide walk you through the intricacies of this useful borrowing option.

 

What is bridging finance?

Bridging finance, or bridging loans, is a short term business solution for a very specific need which bridges a gap in your financial resources. Often used by buyers and investors in the property market, it is also suitable for a raft of other commercial purposes. The short-term nature of this type of finance means it’s sometimes called a swing loan, or gap or interim financing.

 

How does it work?

Bridging finance can be taken out by individuals or by businesses. Bridging loans often confer on the lender a first or second legal charge against the asset the loan uses as collateral. Bridging loans come in many different guises, tailored to a variety of different needs.

A bridging loan offers you access to short term commercial finance, as long as the lender’s eligibility and exit plan criteria are met. Bridge loans also  require the submission of a business plan. The funding can be deployed for a range of business objectives, such as a quick cash injection and/or enhancing working capital.

Bridging finance can also offer support whilst waiting for longer term funding to take effect, eg, a start-up having been allocated a grant might need to cover certain costs while waiting for the money to be deposited. A bridge loan could be used to cover rent, utility bills, stock, payroll, etc.

Bridging loans are either open or closed. A closed bridging loan has a fixed repayment date, while open bridging loans have no fixed repayment date, but the expectation is that they’ll be paid off within a 12 month period.

Remember that while bridging finance can provide a quick solution to cash flow challenges, interest rates will be higher and some form of collateral is usually expected as security.

 

 

Bridging finance in the property industry

Bridging loans are often used in the property industry, by buyers, investors and developers.

Bridging finance can be used to purchase a new home before the current one is sold. Equity from the existing property will be used as a down payment on the purchase of a new one. The bridging loan will bridge the gap between selling the old property and buying the new one.

Bridging finance is also useful for those caught in a buying chain if part of it falls through. Usually the bridge loan’s interest payments can be added to the balance of the new loan or mortgage, paying it off at the end of the term.

It’s still possible for people with a low credit score to be eligible for a property bridge loan if they have equity, and can demonstrate that they have sufficient security and means of paying of the loan.

Property bridging finance can also be used for covering the costs of renovations, buying auction property, buying land for development ­– covering the gap between purchasing and developing the land, and buying uninhabitable properties – covering costs until a mortgage can be obtained (usually once the refurbishment is complete).

One of the major benefits of bridging finance for property the speed of application, approval usually comes within 24 hours. Once approved, funds are generally received within two weeks. Some lenders offer faster processing for a fee. The property will need to be valued and checked by the lender before approving the finance.

 

 

Other uses

Despite bridging finance being most commonly used in the property market, it can also be commercially advantageous for a number of other purposes.

 

First charge bridging loans
A first charge bridging loan uses the property/asset as collateral with no other encumbrance; eg it is fully and solely owned by the borrower (with no outstanding mortgage). If the borrower defaults on the bridging loan, the lender is entitled to sell the asset.

 

Second charge bridging loans
Most often taken out by those needing finance but who have a mortgage on the property used as collateral. The mortgage lender has the first charge against the collateral property/asset.

 

Debt bridge financing
A temporary loan, taken out while a business waits for longer term finance to become available or accessible.

 

Equity bridge financing
Companies wishing to avoid high interest debts can seek out equity bridge financing. A venture capital firm provides the capital as a bridge loan to keep the borrower afloat while they raise equity financing. The borrower may elect to offer the lender equity ownership in exchange for the funds.

 

 

If you think you might benefit from a bridging loan or want to find out whether bridging finance is for you, give Landmark a and you can discuss your needs with our bridging finance specialists. We have built a sound reputation and strong relationships with key personnel at a range of lenders, from boutique to high-street.

Let us help build your bridges

 

0203 773 7299
info@landmarkprivatefinance.com

 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.