A bridging loan is ideal for property purchases at auction because loans can be processed to completion within auction deadlines. Auction bridging loans can be pre-approved prior to attending the auction or organized retrospectively following a successful bid and deposit payment.
Property refurbishment, renovation or conversion
Bridging loans can be used to finance the upgrade of a property. Typically, a lender would class this work as:
- Light refurbishment bridging loan is non-structural work and cosmetic in nature such as replacing kitchens, bathrooms and redecorating, OR
- Heavy refurbishment bridging loan that involves structural work that requires planning approval and building control sign off.
- Bridging finance is not suited to ‘ground up’ projects where developments are completed from scratch.
If a buyer pulls out before exchanging contracts, or the process is slow-moving, a short-term bridging loan can be used to finance the purchase of the new property without waiting for the existing property to sell first.
Growing investment portfolio
A professional property investor uses a bridge-to-let loan to add to their existing buy-to-let portfolio.
A development exit bridge allows property developers to:
- Repay an expiring development loan to allow more time to market and sell their properties.
- Capital raise to finance other projects or take advantage of buying opportunities.
- Provide funding to finish part or near completed projects before marketing, sales, or refinance
- To reduce the cost of borrowing.
Finance the conversion of commercial building into residential under permitted development rights without requiring planning permission from the local authority.
Avoid default charges
Refinance an existing buy to let mortgage, bridging loan or commercial mortgage that needs repaying to avoid penalties and fees
Raise capital for your business
Use capital raising bridging finance for the following purposes:
- Buyout a business partner.
- Business opportunities and expansion.
- Fulfill large contracts.
- Payment of tax liabilities including VAT and Corporation Tax.
- Invest in stock, new equipment, machinery, and new systems.
- Pay bills, invoices. and creditors.
- Pay for unexpected business costs and expenses.
Stop repossession or consolidating debts
A bridging loan can be used to repay an existing lender to avoid repossession, consolidate high cost debts and avoid insolvency.
Renovate a commercial property
A short-term loan may be required to renovate, refurbish or extend a commercial property such as a hotel, restaurant, retail site or other business premises.
Bridging finance for first-time buyers
Many lenders are reluctant to lend to first-time investors and securing finance is neither easy nor fast. The criteria for bridging loans are far less stringent and can be used to fund property purchase and refurbishment finance for first time buyers.
An opportunity arises where a seller buyer is willing to accept a significant discount to the market value of the property on condition the transaction is completed in short timeframe. A bridging loan can be arranged in a matter of days, but typically 1-3 weeks to take advantage of such opportunities.
Estate and tax planning
For property assets held or being purchased under a trust structure.
A lease may be coming to an end or too short to get a mortgage from a high street lender. A bridging loan can be used to fund the purchase and the cost of the lease extension.
Raise capital to pay VAT, corporation tax, inheritance tax, capital gains tax, individual voluntary arrangements, bankruptcy, CCJs or complete a divorce settlement.
What are the benefits of Bridging Finance?
Bridging finance is a short-term property backed product to raise capital quickly and can be used for almost any legal purpose. Competition, lower costs, and the following factors have driven demand in recent years:
Speed – bridging loans typically takes between 1 to 4 weeks to arrange from initial application to completion. Comparing this to a traditional residential/commercial mortgage or business loan that can take several months.
Security – Bridging loans can be secured against any type of property including residential, Mixed, semi commercial, flats above shops, commercial and development land. Unlike high street lenders, they can also lend against unmortgageable property that require refurbishment or management prior to long term refinancing or sale.
Flexibility – bridging finance lenders differ widely in criteria, terms, and type loans offered. For example, not all lenders will fund heavy refurbishments or have appetite to lend to a non-UK resident. However, if the lender understands the purpose of the loan, is comfortable with the value of the security and the borrower’s ability to repay the loan time – the following factors are generally of lower importance when assessing a bridging loan application:
- Poor credit history – bridging lenders are more concerned about the value of their security and viability of the exit strategy. An individual or company with a poor credit score or less than perfect credit history can still borrow, but with an adjusted LTV and pricing to compensate for the higher credit risk.
- Income and affordability – in most cases, insufficient personal or business income is not a factor to approve a bridging loan as interest is retained (deducted) or added to the loan and factored into the overall LTV.
- Accessible – with the help of a good bridging loan broker, property professionals can access over 100 bridging lenders operating in the UK. Affordable, flexible and ability to tailor loans to diverse set of circumstances.
- No deposit finance – 100% bridging loan is possible if loans are advanced against market value instead of purchase and by providing additional security by way of a first, second or even third charge to ensure the lenders overall LTV criteria is not exceeded.
- Purpose – you can use the loan for any legitimate reason.