Bridging loans are short term loans that are flexible and can be used to provide funds quickly in order to address any one of a number of different financial requirements. Bridging finance lenders understand that these funds are often needed very quickly and so they pride themselves on their systems to make funds available in record time.
Some of the uses of bridging finance include buying a property at an auction, converting or renovating a property. Some properties may not be mortgageable in their current condition. Bridging finance can be used to purchase these types of properties and also to complete the necessary refurbishments and renovations.
How Bridging Finance Works?
Terms for bridging finance can be as short as 3 months and as long as 2 or 3 years. There are some lenders that will consider a 5-year term. The term of the bridging finance should be carefully considered in advance because if the loan goes beyond the original term there is usually a penalty, whereas if the loan is repaid early there is no extra cost.
The interest that accrues on the loan is calculated on a monthly basis and it can be serviced or allowed to roll up. Most borrowers allow the interest to accrue each month and be added to the lump sum so the longer you have the loan the more it will cost you. If you repay the lump sum before the term ends you will be charged less interest in total. Apart from the interest any fees associated with the loan can be added to the lump sum as well.
The term of the bridging finance should be carefully considered in advance because if the loan goes beyond the original term there is usually a penalty, whereas if the loan is repaid early there is no extra cost.
Whilst bridging finance is an effective solution it should always be seen as a short term loan which has to be repaid by the end of the chosen term. Therefore before taking on bridging finance it is essential to consider the ‘exit’ or how the bridge will be repaid. Lenders will want to know what your exit route is before they will consider a loan. An example of a typical exit route is to refinance the loan onto a long term mortgage at a much more favourable interest rate, or the sale of the property.
Exel Finance are bridging finance specialists and can provide you with a fast and responsive service to any of your short-term financial needs.
