Until recently, the short-term lending sector was seen as something of a last-resort option for applicants in a pinch. If there were alternative options available, anything was worth considering before resorting to a short-term loan.
Today, the short-term bridging sector is emerging as a force to be reckoned with. Providing flexible and affordable short-term solutions for consumers and business borrowers alike, bridging lenders are emerging from the shadows and claiming their rightful place in the spotlight.
But as the modern incarnation of the sector is still somewhat in its infancy, questions and concerns among prospective applicants are understandable. Thankfully, the basic fundamentals of bridging finance are fairly easy to get to grips with.
For anyone considering purchasing a property with a short-term bridging loan to use as development finance, here are the basic ins and outs you need to know:
- Monthly interest applies – Interest on bridging loans is charged on a monthly basis, emphasising the importance of prompt repayment. The faster you repay your bridging loan, the more cost-effective the facility becomes.
- Other fees also apply – A low monthly interest rate does not always indicate a competitive bridging loan. There may also be additional fees and charges to take into account, including arrangement fees, processing fees, administration fees, exit fees and so on.
- Repayment terms are flexible – A bridging loan can be repaid from 6 to 24 months after the loan was issued. Fees and penalties may be incurred in the case of late repayment, so it is sensible to leave yourself at least a little breathing room.
- Broker support is essential – Your broker will help you choose the most appropriate short-term products to suit your requirements, while negotiating on your behalf with a panel of lenders to ensure you get a good deal.
- Always compare the market – Comparing the market in its entirety with the help of an independent broker will help you find a competitive deal. Taking your application directly to one specific lender is not recommended when applying for a bridging loan.
- Poor credit applicants are welcome – Most bridging specialists are happy to consider applications from customers with a poor credit history or a history of bankruptcy. Eligibility is determined primarily on the basis of security – the assets the loan is secured against.
- You need an exit strategy – Your lender will expect to see evidence of a viable exit strategy – i.e. when and how you intend to repay the loan. The broker you work with will provide the support you need to present a convincing case.
- It can be arranged very quickly – Bridging finance can be perfect for picking up a bargain property at auction. Whereas a typical mortgage may take several weeks or months to arrange, a bridging loan can often be accessed within just a few days.
Your broker will help determine your suitability for bridging finance, while talking you through the alternative short-term options available.
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