6 Myths About Bridging Finance

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Bridging finance has seen a surge of growth over recent years. Although the interest rates are considerably higher than standard mortgage rates, it doesn’t mean you should move away from bridging loans. While you focus on the cost, you are missing a great profit opportunity. If you know how to make intelligent use of this funding strategy, you can overcome a number of financial crises, and sometimes the benefits are massive.

Bridging loans are short-term loans that are used for a number of different purposes. They are used for making a property purchase, expanding business, resolve temporary cash flow issue, buying stock and shares and so on. Despite their growing popularity, it has raised a large number of misconceptions about this finance solution. In this post, Bridging Finance 4 U have mentioned some common myths related to bridging finance and the truth behind them.

Myth #1 – Bridging finance is used only when you run out of all other options

The present economic situation means demand for flexible and fast financing solutions that offer funds in the least possible time. Bridging finance solutions were considered only when other options have failed. However, they are more commonly used by business owners and savvy investors who have recognised the benefits of fast access to money to raise their capital. Bridging finance can also be used to manage cash flow by allowing you to roll-up some or all the interest, which open doors to plenty of other opportunities. Moreover, lenders process each application on its own merits instead of fitting it into the strict tickbox structure, which further makes it a better solution.

Myth #2 – You need a good credit rating to qualify for bridging loans

Standard mortgages require business owners and individuals to have a good credit rating in order to qualify for the bridging loans. If your last outstanding amount is unpaid or you are late on past payments, your credit will probably be affected. This perhaps means some lenders will reject your application or offer a higher rate of interest. However, that’s not true. Bridging finance is more concerned about the value of the property that you put as security. As far as you demonstrate proper planning for the loan repayment and the loan provider knows where the money will come from, your credit rating will be the least important factor.

Myth #3 – Bridging finance is ONLY used for property purchases

Earlier, bridging finance was perceived as the means to bridge the gap between the purchase of the new property and sale of the old property. But, with time, the bridging finance opened doors to many opportunities that require immediate funding. They are often used by people to get access to short-term and flexible finance solutions or until long-term finance solution becomes available. Today, bridging loans are extensively used in home refurbishment tasks, business expansion, buying a property at auction, paying a tax bill, buying commercial assets and so on. All you need to provide is residential property, commercial property or land as collateral, and you are eligible for a bridging loan.

Myth #4 – Getting a loan from the bank is better than bridging loans

Due to higher interest rates than the standard bank loan, many people are often daunted by the bridging loans. But, when we talk about getting a bank loan, it is really difficult to get your application approved by the bank. They have strict lending criteria and take a few weeks to get money in your account if you qualify for the loan. On the contrary, getting a bridging loan is pretty easy. They process each application on case to case basis, rather than following a pre-defined set of rules for all the applications.

Myth #5 – There is a limit on the amount you can borrow

That’s true. There is a limit on the amount the lender can lend you, but this limitation is based on the value of the property you put as security. It is not dependent on the cash flow or your income. You can keep one or more properties as collateral to get a bigger loan. So, the only limitation is the number of properties you have.

Myth #6 – Bridging loans are expensive

The interest rates may be higher than traditional loans, but the cost of bridging loans has tumbled in the past few years because of increasing competition. The growing number of bridging loan providers has caused the monthly interest rates to fall significantly. Moreover, bridging loans has provided businesses and investors with an opportunity to leverage their capital to create wealth. For instance, bridging loan of £30,000 taken for a refurbishment project would increase the value of the property by £50,000, which is ultimately beneficial for the borrower.

If you are planning to take a bridging loan, talk to BridgingFinance4U about all facets of bridging finance. We are more than happy to provide unbiased advice and dispel any misconception that you have regarding bridging loans.