A bridging loan is a specialist financial product designed to help individuals and businesses to access short-term finance when they need it. Before we compare bridging business loans, let’s look at the main features.
A bridging business loan is a short-term loan, usually designed to ‘bridge’ the gap between a property purchase and sale, or to buy a property in auction whilst waiting to arrange a more standard mortgage product. Bridging loans are extremely fast to organise and they offer the borrower the chance to access the vital finance that they need. However, these loans are also very expensive and they should be approached with caution, as they can be easily misused and become hugely expensive for borrowers who are inexperienced.
A standard mortgage is designed to last for a protracted period; typically around 25 years. It is serviced monthly via interest payments and offers an affordable rate which reflects the loan’s long-term nature. Bridging loans are designed to be short-term, interim products that provide instant finance for immediate purchase. They are expensive, with monthly charged interest. Their nature means that they need to be quickly cleared with alternative funds, such as property sale proceeds or a traditional mortgage.
Bridging loans tend to start from around £30,000 and can go up to £1,000,000 or even more depending on the asset being purchased and the borrower’s own situation. These loans tend to be offered on a tailored and flexible basis, with a great deal of variation between lenders.
Bridging loans have monthly interest charges which can easily translate into an APR of 18% or more. The interest portion on the loan can be serviced monthly, deduced from the principal itself at the point of the loan arrangement, or paid upon completion of the bridging loan. Different lenders will offer different arrangements according to the customer’s situation and needs.
Because bridging loans are specialist products, they tend to be available via specialist lenders and brokers rather than on the high street. Many people carry out bridging business loans comparison and brokers to find the best deals – with brokers often getting access to bridging business loans comparison deals which simply aren’t available via the direct market.
Be mindful that these loans will have a number of costs attached, such as arrangement fees at typically 1.5%, valuation fees, legal fees and the interest itself. Other fees for paperwork may be applied and full details of these should be provided before the loan is taken out
Each lender will have its own eligibility criteria, which tends to be based on additional factors alongside the applicant’s credit history. These might include additional security, the value of the asset being purchased, clear evidence of the plan to repay the bridging loan and a guarantor.
Our bridging loan comparison will give you an idea of the lenders which are prepared to extend these kinds of loans and the types of they that they offer.
Want to compare bridging business loans? When it comes to bridging business loans comparison, a broker can assist a client to access an array of bridging loans and other forms of specialist lending available in the commercial market. Bridging loans are a broad category in their own right and there are various sub-categories of bridging loan which are designed for different purposes, such as auction finance and bridging finance for residential, commercial and HMO properties.
A broker, whether online or offline, can access deals which are not always available on the open market and provide value by liaising with the lenders directly and handling the administration. This service will be rendered in return for an administration fee which may be covered by the client or the broker.
This depends on your situation and you should always seek professional advice if in doubt. A bridging loan can be useful in a range of situations. Perhaps you are a residential property owner who wants to secure a purchase on a new property before your existing one sells. Perhaps you are buying a commercial property at an auction and need rapid access to the funds the auction requires to complete, pending completion of a standard mortgage. You may even be looking to buy a property which is considered uninhabitable and therefore ineligible for a standard mortgage until the remedial work is carried out.
In all of these instances, a bridging loan may be a useful product to provide the necessary finance quickly. Some bridging loans can be organised in as little as a few days – compared to standard mortgages which often take weeks to complete.
However, applicants must be extremely careful with bridging loans and the risks that they represent. The main risk concerns the monthly interest rate and the short-term nature of the loan. If the bridging loan isn’t repaid on the due date, the interest rate can snowball and the lender can claim the underlying asset – provided as security – to sell and recoup the proceeds against the outstanding loan. The borrower may then find that he or she is still liable for outstanding interest costs.
Bridging loans are a broad category of short-term finance with a high associated interest cost. They can be useful for experienced borrowers with a clear project and exit plan in mind. However, if the exit plan does not happen on time – perhaps the underlying property doesn’t sell, remedial works are delayed or the standard mortgage on the property is delayed for any reason – the bridging loan can be very expensive and lead to financial difficulties for the borrower.
If this happens, the costs can spiral out of control. It is vital for borrowers to be extremely clear as to the terms and conditions of a bridging loan before taking one out, have a clear exit plan, be confident on affordability and to seek suitably qualified advice before progressing with this type of loan.