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What is a Bridging Loan?
A Bridging Loan is essentially a short-term loan. You may hear the term ‘Bridge’ bantered around which basically means you gain access to funds for a short period to cover a temporary gap in your cashflow or a shortfall in the overall funds required to complete a transaction or project.
Ideally, this type of finance is only required when you do not have immediate access the funds that are either held or tied up in other areas or assets that you cannot realise at the time you need the cash, but that can be accessed over a period of time.
Alternatively, you may need funds quickly but cannot raise the funds through conventional lending sources within a required deadline due to a short timeframe or the nature of the transaction or project.
Why is a Bridging Loan different to other finance?
In most instances conventional forms of mainstream lending takes longer to organise because the application process and lending criteria is more complicated and time consuming which will often restrict your position and the ability to complete a transaction or project within a deadline or may put you at a disadvantage when negotiating.
The reason behind this is simple, a conventional commercial loan or mortgage application is not only focused on the value of the asset or property you wish to finance, but also on the long-term ability to service this borrowing over a period of years. More relevantly, a conventional commercial loan lender is looking at lending for a long period unlike a Bridging Loan, so as such, the sale or refinance of the asset is not taken into consideration when underwriting a traditional commercial loan application.
Bridging however is primarily asset based so easier to arrange quickly as the fundamental principals of the loan are very different to that of conventional lending and this makes it less time consuming in terms of underwriting for a specialist Bridging lender. Providing the asset being used as security values at a percentage of the Loan amount being applied for and there is a clear strategy or planned exit, most Bridging Loans can be turned around quickly. A Bridging Loan can therefore give you the funds you need until you can release funds from elsewhere, complete a project or arrange a long-term funding solution.
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Asset based lending is when a Loan is granted against a proportion of item’s value like a property or realisable resource that provides security to the lender as alternative collateral to cash. In short, this means the lender can take full possession and sell the asset used as security should the Loan not be repaid and gives the lender the ability to recover any outstanding debt the borrower may have at the end of a loan agreement should it be necessary. For this reason, it is imperative you have a clear and financially viable exit strategy, as this will form part of the Loan agreement you enter with any asset-based Loan.
Bridging Loans should only be used as a short-term solution, they are a great and flexible finance tool that can provide almost instant cash to meet a deadline that can save money on a transaction, fulfil a financial commitment or open opportunities that may not otherwise exist. A good time to use a Bridging Loan is when timescales are paramount as a Bridge can improve your position, allowing you to seal a deal quickly and give you an advantage and upper hand during negotiation or when making critical closing offers. Bridging can be an exceptionally powerful for those who understand what they are trying to achieve from a variety of different business scenarios, it is an excellent tool that can either help turn the tide in your favour to meet a deadline or gain business leverage.
However, a Bridge can only be as good as the opportunity it is being used for. If a person or company taking a Bridge does not understand the fundamental reasons or financial benefits of a Bridge in the full picture of a project or acquisition, then a Bridge will appear an extremely expensive form of finance. However, the cost should be viewed in relation the overall goal trying to be achieved.
The majority of UK lenders will want to roll-up interest payments, so you only pay at the end of the term and you only pay for period of time you use the Bridging Loan. In some rare cases the lender may impose an exit fee but the majority of the lenders we deal with, don’t charge an exit fee and the term of a Bridging Loan is usually 12-18 months.
A Bridge It can be used for most business ventures, tax bills, property acquisition and development. For example, if you were thinking of purchasing a property at auction and only have 28 days to deliver proof of funds, a Bridge can be put in place to provide you with the relevant funds to complete the purchase. Most bridging finance applications can be completed within 10-14 working days, subject to basic credit checks on the applicant and the relevant valuation of the asset or property being offered as security and due diligence on the use of the Bridging Loan.
There is also a legal process which needs to be carried out but we aim to get this completed within 7 days by working with the borrower’s and lender’s solicitors.
There are two main types of Bridging Loan, an Open Bridge and a Closed Bridge.
An Open Bridge has no defined end date to repay the Loan but Loan terms for this type of Bridge usually last 18 months before repayment is expected by the lender. These tend to be more flexible and as a result can cost more than a closed Bridge facility. A closed Bridge has a defined end date in the terms you agreed, and the lender would expect to be in receipt of funds on or before the date specified in order to pay back the loan in full. Terms for this type of Bridge are usually up to 12 months or less.
A rough guide for Bridging interest is 1% per month, however, this may vary up or down according to the purpose of the Bridge, the security being offered and the credit history of the applicant. Those who can provide a strong case in these areas can potentially expect to obtain competitive rates. You should also factor fees for lender, broker, valuer/surveyor, solicitor and conveyancing.
In order to obtain a Bridge, you will need a deposit equal to 30-35% of the Bridging Loan required. The lender will want some form of security, this will usually be in the form of a First Charge over a property or other asset. If the security being offered is deemed unsatisfactory or insufficient in value you may need to offer an additional asset(s) as collateral, this may include your personal home.
One of the most important aspects of a Bridging Loan is how the Loan will be repaid and this should be part of the overall plan, project or transaction from the outset. In most cases the Bridge will be repaid from the sale of a property or asset, alternatively we can help in arranging long-term finance in the form of a commercial loan or mortgage to replace the Bridging Loan as part of our service.
- realised from either the sale or long-term refinance of an asset or property.
- The interest on a Bridge will be higher than traditional commercial Loans, but it is more flexible and as it is purpose built to be a short-term Loan facility. A Bridge generally does not carry an exit or early redemption fee attached to the loan agreement.
- Read the terms of a Bridging Loan agreement carefully before contractually committing and signing any paperwork as a handful of smaller independently funded Bridging providers do make a charge for exit as part of their heads of terms, regardless of when the Loan is repaid, in these instances the exit fee will usually be 1% of the total Loan that will need to calculate in your costings.
- In almost all cases, interest will be roll-up and added to the total amount of the Loan, so there are no monthly payments to be made during the period of the Loan.
- The Loan facility is based on the security being offered against the Bridge rather than income or the ability to make monthly payments to service the interest or capital of the Loan.
- The lender will require a deposit of 25-35% as proof of your financial commitment and input to the business venture or project.
- The lender will expect you to have a planned timescale of any transaction or project together with a defined and financially viable exit strategy of how the Bridging Loan will be repaid. This is to enure the asset and subsequently their money is safeguarded at all times against the asset or property assigned and held as security against the Bridging Loan facility.
Advantages and flexibility of Bridging Loans.
Although Bridging Loans are primarily used for property purchases by private individuals and for cashflow purposes by auction buyers or property developers, a Bridging Loan has a wider range of uses some of which we have listed below.
- Temporary boost to cashflow for seasonal or liquidated stock purchases.
- Paying a trade creditor, or unforeseen invoice, tax demand or other liability.
- Increase bargaining position for a transaction or limited time financial contract.
- Business takeover, merger or acquisition of another company or business.
- Purchase of new business premises, refurbishment of commercial or residential premises.
- Renovation or conversion of a property to make ready for sale or rental.
Commercial Bridging Finance
Looking to buy a commercial property or need funds for another business purpose?
Buy to Let Bridging
Buying at auction or a property for refurbishment?
A bridge can give you funds fast to complete that quick purchase.
Bridging Finance to break that chain
Need a bridge until you can sell your current home, or simply release funds for another project.
Borrow from £25,000 to £50m
No matter how much you want to borrow, we will do our best to make it happen, without the fuss or headache.
Rates from as little as 0.4% per month
Lender’s rates change regularly, so we always scan the market to get the best rate for your specific circumstances.
Make use of our in-house accountants
Their expertise and experience are part of our service and at your disposal.
Helping you choose the right bridging finance for your commercial or residential moves
Find the right bridging finance at Lumi Bridging Solutions
Contact us today for your bridging finance, buy to let mortgage, commercial mortgage, bridging loan for house purchase, HMO purchase, emergency cashflow loans, auction finance, bridging loans for property development, bridging loan mortgage, business bridging loan, commercial development financing.
Commercial bridging for your business, investment or development projects
LUMI BRIDGING SOLUTIONS IS A TRADING NAME OF FEINGOLD FINANCIAL SERVICES LIMITED
Company registration number 05087823. FCA registration number 303451. Data protection registration number Z8766562
Registered office: 1st Floor, Swan Buildings, 20 Swan Street, Manchester, M4 5JW.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE SECURED AGAINST IT.