Is your favourite property on sale, or are you looking for funds to complete the purchase of a property? A bridging loan can be a perfect solution to your problem. It is a type of short-term loan available for those who need quick access to capital. Typically, it is used for property purchases to bridge the gap between purchasing a new property and waiting for the sale of another property. However, it is flexible in terms of use, and you can use it for all legal purposes.
Most lenders offer a loan for 3 to 12 months, but you can also find longer loan terms. It is a secured loan, meaning you have to use any asset, usually a property, as a security against the loan.
The eligibility criteria and terms and conditions of bridging loans vary from lender to lender. Here we are describing the five necessary aspects of bridging debts that you must keep in mind before taking out such a loan.
Bridging loans are also known as hard money loans and are purposely short-term in nature. You may wonder what it means. A typical bridging debt is no longer than a year, but one year is on the high side of this business. Most lenders provide loans for only six months and charge high-interest rates. But there are lenders who offer loans for the long term with a competitive interest rate.
You can get bridging finance from a specialised bridging lender or p2p lending platform. If you take out a loan that extends to a full 12 months, you will not need to pay much because the points do not approach, such as a high annual rate. You should do research and shop around to find a loan that meets all your needs.
It is a characteristic of bridging debt that separates it from traditional bank loans. It is known for its speed of arrangement. Traditional lenders and banks offer a complex application process that can take a long time to complete. In addition, they require much paperwork to find whether a borrower can afford to repay a loan or not.
On the other hand, the application process for a bridge loan is simple and easy. All the bridging lenders assess each loan application on its own merits. It does not include lengthy paperwork, and you can get access to funds usually within two weeks. Furthermore, also offer loans even if you have a below-normal credit score. If you find it challenging to secure a bank loan, you can consider bridging finance.
Bridging debts are used to meet the immediate financial needs means that the borrower's cash flow is not enough for said needs. Therefore, lenders need some kind of security to protect their investments. For example, suppose property developers need to purchase a new piece of land for development. In that case, they have to offer any existing piece of land or property as collateral to take out a loan. The lenders then find the value of collateral to decide how much they can offer depending on the property's value.
One thing that makes bridging finance different from traditional mortgages is that bridging lenders accept all types of properties as security. Whether you have a commercial, residential, semi-commercial or mixed-use property, you can use it as collateral and get funds to fulfil your needs. Mortgage lenders do not accept a property that is uninhabitable, but bridging loan providers are flexible in this term and accept uninhabitable properties and lands as collateral.
One of the common uses of bridging finance is supporting equity financing. If your business is facing cash flow problems, you can take out a bridging loan to cover payroll, rent, inventory and other expenses until you get sufficient equity funding. This way, you can start operating or continue operating because you get access to the next round of funding.
Businesses usually find it difficult to secure a loan from banks. Since banks have strict lending criteria, many businesses fail to meet all their requirements. Especially startups and small businesses have to face such challenges. Furthermore, businesses usually need a larger amount that banks are unwilling to pay. As such, a loan can be resizable. With a bridging loan, you can take out an amount ranging from £50,000 to £15 million. However, if you need a large amount, you may have to put in additional security. You can also use more than one property as collateral to take out a large loan amount.
Other than these necessary aspects bridging debts have some other characteristics that you must consider, such as flexible repayment options. You have an option to repay the interest rate monthly or at the end of loan terms. You can apply online and save time.
Conclusion
A bridging loan is short-term finance offering a number of benefits for borrowers and investors. As a result, the demand for such loans has increased in recent years. Some p2p lending platforms also started offering bridging finance to attract more customers. It may be an expensive way of borrowing, but it allows you to get quick access to funds as compared to traditional mortgages and standard bank loans. When taking out a bridging debt, you must keep in mind all the fees the lender is charging in addition to the interest rate. It will help you understand whether you can afford to take out such a loan or not. Determine your needs and shop around a lender that follows best lending practices and offers competitive interest rates.
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