Bridging loan
A bridging loan is a fast turnaround loan that ‘bridges’ the gap before you get long-term finance in place. These loans are fast and flexible, making them suitable for a wide range of businesses and purposes.
What is a bridging loan?
A bridging loan is a form of finance, typically secured against property, that allows you to access funds quickly to purchase assets or to refinance existing, thereby releasing working capital for your business needs.
These loans are intended to be a temporary solution to tide you over until they are replaced with long-term funding or the property is sold, so expect loans to typically be a maximum of 12 months.
Perhaps you’ve seen a property at auction and can’t get a commercial mortgage in time to complete the sale? The bridging loan would give you the finance to buy the property.
Or perhaps you are buying a property that a traditional lender wouldn’t touch because it needs extensive renovations? You could use a bridging loan to buy the property and do the renovations. Once these have been done, you would apply to another lender to take out a long-term mortgage and pay off the bridging loan.
Thoughts from Matt
“Bridging can provide you with an excellent opportunity to purchase an asset quickly. When you see an opportunity in business you want to seize it there and then.
You don’t want to be slowed down because you don’t have ready cash to hand. A bridging loan will give you the funding you need so you don’t miss out.”
Matt Haycox
Founder and CEO, Funding Guru
Can I get a bridging loan?
A bridging loan is most often used by those in property investment and development, including buy-to-let schemes.
However, a bridging loan can be used for any commercial purpose as long as there is a clear exit strategy. This means the lender must be confident you have something to sell to clear the loan, or that you can secure permanent funding from another funder.
Bridging loans aren’t offered by mainstream banks, so you will have to find an alternative finance provider.
At Funding Guru, we offer commercial bridging loans of £50,000 to £2m with fixed and competitive interest rates. We have no hidden fees and consider applicants with adverse credit.
We make decisions quickly and you could have the funds within days.
Data Source: Bridging Trends
What’s required on a bridging loan application?
When assessing you for a bridging loan, we will require a wide range of financial information and details of the asset you want to use as security for the loan.
Like with any commercial loan, the best way to get accepted is to have a clear business plan for your application – along with all relevant and current supporting documentation.
As a lender, below are the key things we need to know:
- Why you want the money
- How long you want to borrow the funds for
- How you are going to pay it back
- What is our security that will ensure we can get our money back if you don’t repay on time?
Why take out a bridging loan?
The number of companies registered to pay VAT has remained steady over the past five years, official data shows. Around half of all companies are registered to pay VAT.
Data Source: Bridging Trends
How can I improve my chances of being accepted for a bridging loan?
To boost your chances of being accepted for a bridging loan, consider the below.
Pull together all relevant documentation
A typical application should include annual accounts, management accounts and the last three months of bank statements for your company. Outline your clear business case and explain why you need to borrow the money.
Give plenty of details about the property to be used as security
You will be required to give details of the property to be used as security. This will include general information about the size and condition of the property, sales particulars (such as information related to leases or covenants), an online link to the property on websites such Rightmove or a previous valuation report.
Clearly detail how the loan will be repaid
How do you plan to repay the loan? We will want this explained clearly. You should include:
Information on another asset sale that will provide capital
Evidence from an estate agent showing the property will sell
Detail of planned renovations that means you can remortgage in the near future
Evidence of your cashflow to meet the necessary interest payments
Give detail on your assets
The strength of an asset or assets you are using as security against the loan will play a big part when we consider your application. We will want information on the quality of the building or land, its location and how quickly it could sell.
Speak to an experienced bridging provider
There are many providers offering bridging loans, At Funding Guru, we’ve helped businesses from every imaginable secutor all across the UK so we are confident we can advise and support you. We act as both a lender and a broker, so if we can’t offer you the funds ourselves we will work with you to find the best alternative provider.
Pros of bridging loans
There are many benefits to taking out a bridging loan, which include the below.
You can get the funds within a few weeks (often faster), which is far quicker than a traditional mortgage or another secured loan that could take months.
Bridging loans can be used for a wide range of purposes. This includes buying a new property before selling an existing one, or making renovations to a property before refinancing.
There are many finance providers, including Funding Guru, offering bridging loans. One of our consultants can also advise on how to get the most suitable deal.
A bridging loan is often able to provide a higher loan-to-value than a traditional commercial mortgage provider. This is a big benefit if you have limited equity in the property.
Cons of bridging loans
Like all borrowing, you should think carefully about how you will repay the loan. Below we list some of the key risks of bridging loans.
A bridging loan is among the most expensive types of borrowing. As a borrower, you will want to pay off the loan as soon as possible – so it’s important to have a clear exit plan to repay the loan.
The interest can either be paid monthly, or rolled up at the end of term. The benefit of repaying the interest at the end is that it will not reduce your ongoing cash flow – which can be useful if you are doing a renovation project and need every penny.
On top of paying interest, you may also pay various fees when taking out a bridging loan. These are likely to include a broker fee, an arrangement fee, valuation fees and legal fees.
Bridging loan providers offer fixed and variable interest rates. If you choose a variable rate, there is the risk the interest rate will rise during the term of the loan. The Bank of England base rate has risen numerous times since late 2021, so it’s a possibility your loan interest rate could rise in the near future.
With a bridging loan, an asset (such as a property) is secured against the loan. So if you can’t keep up with the repayments, you risk losing that asset.
Can I get a bridging loan with bad credit?
If you do require bridging finance for poor credit, the good news is that your credit score is less essential than with a traditional mortgage lender.
At Funding Guru, we make a decision on a case-by-case basis. We consider funding even if you have CCJs or have defaulted on a loan in the past.
The key to being accepted is to demonstrate you have a clear exit plan in place and will be able to repay the loan. We may also require other assets as security, such as another property.
However, be aware you may have to pay a higher interest rate and higher fees if you have a poor credit score.
Get in touch with us today and we can talk through your options.
Contact Us
Contact us online to apply for a bridging loan with Funding Guru. Alternatively, chat to us on the phone.