Business

The facts about A bridging loan in the UK

Bridging finance almost always requires that you offer some sort of security for the loan. You could offer up commercial or private property that you own or other substantial collateral. A bridging loan is typically a short-term loan that a company uses to supply cash for a property transaction until a long term solution can be arranged.

Whilst researching a bridging loan you will come across the terms closed bridge and open bridge. Generally speaking a closed bridge is where the 'exit route' or 'settlement source' is already arranged typically where agreements have been exchanged but the funds are not going to become attainable in time. On the other hand, an open bridging mortgage means that there is not a confirmed repayment method. As with most things financial, there is a grey area between the two. The biggest things is to make sure you are arranging the right mortgage for your circumstances.

Because the need for short term property finance will often crop up suddenly and without warning, it is a good idea to establish a relationship with a bank before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan dependant on the value of any security offered.

Who uses A short term property loan

A typical use for bridge finance is to cover a situation where a company needs to complete the purchase on a new business before having sold their old one. They would then use the proceeds of the a bridging loan to continue making payments on the old business until it is sold. In the business investment market bridging loans can be used for completing purchases quickly; for example, when property has been secured at auction. They can also be cost-effective for clients wishing to acquire business for refurbishment and re-sale.

How A bridging loan Works

Since a bridging loan usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of mortgage. Lenders make their profit by charging interest across the life of a loan. With a short term property loan the shorter the mortgage period the less interest they earn, as a result the rate may be higher. In general the interest rate in determined by the perceived risk by the lender, this can be affected by the mortgage amount, the type of business being used as security and your credit history.

A bridging loan can be used for a variety of purposes such as:

• Probably the most the usual use of a bridging loan would be connected to buying a property, a bridging loan gives you an agreed amount to assist you bridge the gap between selling and buying your business.
• Short term property finance can be used to purchase properties at auction thereby avoiding the problem of completing the purchase within 28 days. A short term property loan is often completed in days rather than weeks.
• Provide temporary funding for the purchase of a 'defective' property, pending completion of repairs.
• To fund short-term commercial or residential renovations, particularly if the property is not habitable.
• A bridging loan is increasingly used for property development including site purchase, self-build projects and property conversions.
• To raise capital for any purpose, pending a sale or refinance of the security business.

Because short term property finance can be based on the Open Market Value of the property it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of bridging finance to most business investors who are often willing to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the loan. A useful feature of short term property finance is that the client can repay capital at any time, thus reducing the outstanding balance and future monthly instalments.

Where to go for A short term property loan

Some banks offer fast in principle decisions and may be willing to release funds for clients very quickly. This 'quick' element allows clients to use a short term property loan as a way to secure a property speedily, and with the minimum of stress. A commercial mortgage broker will be willing to find the fastest deal. The best way to secure a short term property loan at the most favourable rates and terms is to work with a UK Business loan Broker who understands the ins and outs of bridge mortgage. Short term property finance can either be based on the restricted sale value of a business or the Open Market Value (OMV). The difference is simply down to the preference of an individual lender, a specialist commercial broker will be well aware of the difference and should ensure that this is made clear to the persona applying for a loan.