What is Bridging Finance?
Bridging finance London refers to a temporary funding solution to cover short-term expenses until long-term finance is secured. It enables the borrower to have immediate access to the funds they need to meet current financial obligations. Bridging loans usually require a strong exit strategy and have a relatively higher interest rate.
A few common circumstances where bridging finance can be useful are:
- Purchasing a new property before your existing home is sold
- Renovating your home
- Buying a property at auction
- Buying an unmortgageable property
- Overcoming short-term cash flow problems
- Buying new commercial equipment
- Investing in property development
How Does Bridging Finance Work?
Bridging finance is a specialist form of financing that majorly depends on how you plan to repay the loan and what asset you can keep as security. The value of security and a strong exit plan directly influences your chances of approval. Let’s understand how a bridging loan works step by step.
Step #1 Know the purpose of the bridging loan
Before you apply for a loan, it is essential to understand why you need a bridging loan in the first place. Whether you want to complete a property purchase, buy a property at auction, resolve cash flow issues, or undertake a property development project, identifying the need for a bridging loan will help you connect with suitable lenders.
Step #2 Find the right bridging loan provider with favourable terms
Finding the right bridging finance lender is crucial. Make sure you consult financial advisors, who can help you find suitable bridging loan providers based on your requirements. Compare loan terms, interest rates, and associated fees to find the most favourable terms. Ensure the lender you choose is licenced and regulated, and don’t forget to cheque customer reviews to gauge their service and reliability.
Step #3 Preparing and submitting the loan application
Next, you will need to prepare and submit an application to the bridging loan lender. Besides essential documents, such as ID proof and income proof, you must clearly mention the purpose of the bridging loan and your exit plan to get approved for bridging finance. The lender may ask for additional documents depending on your credit history and your purpose for bridging finance.
Step #4 Assess the value of the collateral
The value of collateral plays a significant role in determining the loan amount, interest rate, and associated terms. Usually, collateral involves residential or commercial property or other assets put as security against the loan. The lender will assess the value of the asset based on the present market condition and value. The higher the collateral value, the larger the loan amount you can access at a relatively lower interest rate.
Step #5 Loan terms and costs
Once your application is assessed and the collateral is valued, the lender will provide the bridging loan offer that includes the approved loan amount, interest rates, the loan term, repayment terms, and other conditions. Ensure you go through it carefully and understand all the terms and costs before you proceed with the loan.
Step #6 Offer Acceptance and legal agreement
After you choose to accept the offer, the process requires completing legal procedures and documentation. This includes signing a legal agreement between the borrower and the lender, along with other documents, such as property ownership documents and proof of income.
Step #7 Release of funds
Once all documents are clear and legal formalities are completed, the funds will be released and credited to your bank account. Since bridging finance is designed to be quick, you can expect to receive funds promptly.
To conclude, bridging finance is a convenient and flexible financial solution that allows you to raise short-term funds to bridge the gap in various circumstances, especially where timing is critical. While bridging loans offer speed and flexibility, the borrower must have a strong exit strategy in place for successfully navigating through the bridging loan.
