One thing most lenders would probably agree on is the importance of never rushing into things. Without careful planning and extensive forethought, what seems a good investment at the time can quickly turn into a nightmare.
But there will always be instances where making decisions on the spur of the moment is necessary. The kinds of time-limited investment opportunities where procrastination can prove costly and swift action is acquired.
When time is a factor, conventional loans and mortgages are rarely viable options. Instead, you need something that provides fast access to the capital you need, without the usual delays.
Precisely where bridging finance can prove invaluable – possibly the fastest funding solution for investors and property developers.
How Does Bridging Finance Work?
Bridging finance differs from conventional loans in that it is strictly a short-term solution. As the name suggests, it is a facility used to ‘bridge’ temporary financial gaps at short notice.
Applying for a bridging loan means gaining access to the funds required within a matter of days. After which, the full balance is repaid anything from two weeks to 18 months later. In the interim, no monthly payments are necessary as the loan is repaid in a single lump-sum payment.
This provides developers and investors with the breathing room they need to oversee successful projects.
In a typical example, an investor could purchase a rundown property at auction, conduct the necessary renovations and sell it for a significantly higher price. The bridging loan is used to cover the costs of the property and the renovations, which the investor repays when the property is sold.
As payment for properties at auction is required promptly, conventional loans and mortgages are not a suitable option.
Why Bridging Loans Are Ideal for Property Developers
Where property developers need fast-access funding for major projects and purchases, there are limited options on the High Street. In addition, it is the norm for investors to have most of their capital tied up in property, stocks and other investments.
They may have a significant investment portfolio but have very limited on-hand capital at any given time.
Bridging finance is designed specifically to address this common issue. Just a few of the benefits of bridging loans of greatest appeal to property developers include the following:
- Minimal Processing and Completion Times
In some instances, it is possible for a bridging loan application to be processed in full within a few working days. Even if the applicant’s requirements are fairly complex, it is rare for bridging loan completion times to extend beyond two weeks.
This can offer a real lifeline to property developers and investors on borrowed time. Where capital is needed as quickly as possible to fund a major purchase or project, nothing is faster than bridging finance.
- It is Strictly a Short-Term Facility
Property developers and investors often prefer solutions that are short-term in nature. Conventional loans and mortgages with long-term repayment periods can be both binding and expensive. Where a developer has the capacity to repay the full loan amount within a matter of months, this will usually be the preferred option.
Short-term bridging finance can therefore be a more convenient and cost-effective solution than a loan or mortgage taken out over several years/decades.
- All Cases Are Fairly Considered
Bridging finance applications differ from conventional loan applications in that they are considered by way of individual merit. It is rare for a bridging loan application to be declined exclusively on the basis of poor credit, a lack of proof of income or a history of bankruptcy, for example.
Instead, the lender will consider all aspects of the project/investment from the broader financial position of the applicant. If the value of the assets used to secure the loan comfortably exceeds the loan amount, the application is likely to be accepted.
- The Funds Can be Used for Any Legal Purpose
With most commercial loans and mortgages, the funds provided can only be used for purposes approved by the lender. Restrictions almost always apply with regard to how the loan is utilised.
With bridging finance, the funds can be used for any legal purpose whatsoever. Bridging loans can also be taken out to purchase nonstandard properties, for which it would be impossible to arrange a conventional mortgage.
- Overall Borrowing Costs Are Highly Competitive
Lastly, the short-term nature of the bridging loan can also make it highly cost-effective. Interest rates on bridging finance typically start from around 0.5% per month or less. This means that when a bridging loan is repaid promptly, the overall interest payable is minimal.
Particularly when compared to a longer-term mortgage for a commercial loan, bridging finance can be a uniquely affordable solution. Ideal for property developers and investors looking to turn a quick profit, with time-critical purchase and investment opportunities.
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