Bridging Loans for Business: Making the Right Choice
Bridging loans have the potential to be advantageous compared to more conventional loans and mortgages in a variety of ways.
A few of the defining characteristics of bridging finance:
- The funds can be accessed in as little as 72 hours for time-critical purchases and urgent outgoings
- There are no limitations to how the funds can be used once released by the lender
- Terms vary from 2 to 24 months, with most loans being repaid within the first year
- Interest rates can be below 0.5% per month, making bridging finance an exceptionally competitive short-term funding solution
Typically, bridging loans for businesses are available from £25,000 upwards. The funds are secured against a qualifying property – residential or commercial – in the same way as a traditional mortgage. Most lenders offer bridging loans with an LTV between 60% and 90%, though borrowing up to 100% may be possible if sufficient security is provided by the applicants.
How Much Does a Bridging Loan Cost?
Bridging loan costs are determined not only by the monthly interest rate, but also the additional costs attached to the loan. Examples of which include arrangement fees (up to 2%), completion fees, early repayment fees, surveyor’s fees, legal fees and other general admin fees.
Ensuring all of these costs are kept to a minimum means comparing the market in full with the help of an established independent broker.
Are Bridging Loans Available from Banks?
The vast majority of major lenders do not offer bridging loans or similar short-term financial products. Such facilities are available from an extensive network of specialist lenders away from the High Street, which in many instances provide their services exclusively via established brokers.
There are FCA regulated and unregulated bridging loans available in the UK – the potential risks of unregulated loans need to be discussed with your broker before applying.
When is a Bridging Loan Better than a Mortgage?
Bridging loans and mortgages both have their own points of appeal and intended applications. While a mortgage is ideal for spreading the costs of a major purchase or investment over several years or decades, a bridging loan is a strictly short-term facility.
However, whereas it typically takes weeks or months to arrange a mortgage, bridging finance can be arranged and accessed in just a few working days.
Can You Get a Bridging Loan with Bad Credit?
Bridging loans are amongst other drivers, issued on the basis of security – i.e. the value of the assets the applicant offers to cover the costs of the loan.
As a result, it is therefore possible in certain circumstances to qualify for bridging finance with a poor credit history, CCJs, IVAs or a history of bankruptcy, provided you have sufficient security and an acceptable repayment method.
What Are the Alternatives to Bridging Finance?
There are various types of specialist secured loans available for a wide variety of purposes. Depending on your requirements and your preferred repayment method, there may be alternative options that are more suitable than a bridging loan.
Commercial finance, first or second charge mortgage, specialist business loans or development loans, should be discussed with your broker before applying.
For more information on any of the above or to discuss any aspect of bridging finance in more detail, book your obligation-free consultation with a member of the team at UK Property Finance today.