A bridge loan is a great tool that can help businesses, such as property developers complete property transactions quickly. However, it’s still important to be aware of the potential issues with this type of financing because if not used correctly, they can become costly ventures.
Bridge loans, also known as bridging finance, are a short-term financial solutionsthat can be used to purchase investment properties before applying for a traditional bank or mortgage options.
Bridge loans are a quick and easy way to get funding, even if you have bad credit. They’re secured against an existing property or asset, which means they don’t require much in the way of criteria or credit checks – so as long as there is equity in your home/property, it could provide sufficient collateral for this type of business loan.
How to use bridge loans as a financing tool
As an example, suppose the perfect property suddenly comes up for sale or appears at an auction, however, your current financial situation or cash flow means you cannot afford it, meaning you could miss this potential bargain investment property.
There is a high chance that applying for a mortgage in this situation would not work due to timing constraints imposed by credit checks, due diligence andthe added time it takes banks or building societies to make decisions. It is likely to be too late by then and the investment property will have already been sold.
A bridge loan is an ideal potential solution in this scenario. Bridge loans release equity held in existing properties so that it can be used as a down payment on the new investment property or even to pay the full amount of the property.
Bridging loans can be used for any business purposes such as repayment of a bounce back loan, repayment of bank borrowings, tax liabilities.
The repayment duration of bridge finance
A bridge loan or bridging loan generally has a duration ranging from 3 to 6 months, however, there are always options for negotiation with the lender to extend these terms or sign another deal at the end of the existing term to extend the borrowing term. Unlike regular bank loans or mortgages, bridge loans do not attract repayment every month and are repaid in full at the end of their term, along with any interest and fees.
This can help to reduce the stress of worrying about meeting regular monthly payments, typically associated with standard loans or mortgages, allowing full focus on the project at hand.
How much can you expect to be able to take out with a bridge loan?
Getting quick funding is never easy, but getting hold of funding quickly is even harder. Luckily with bridging finance, this isn’t always true! Bridging lenders can potentially release funds on the same day as an application, depending on their policies and restrictions. As bridging loans have limited credit checks, these loans are extremely fast-acting making them perfect if you need funding urgently.
Bridge Direct can offer instant decisions on all bridging loans that can potentially allow borrowers take out as much as 80% of the equity they hold in their property.
The amount that can be borrowed will vary from lender to lender, Bridge Direct offers an instant decision on bridging loans from £30,000 to £3 million.
Interest charges on a bridging loan
Unlike mortgages or other longer-term loans, the interest rates on bridging loans are slightly higher than average due to the short repayment period. However, this rate will vary between lenders and can be even more inflated if they a broker is involved. However, when considering how much time is saved in terms of the application process for investment properties development by getting one might make up for it altogether. Bridge Direct are direct lenders cutting out the middle man, meaning they can offer instant decisions on all of their Bridging Loan services.
When is Bridge Finance useful?
Bridging loans are a great way to allow property developers and investors to complete their projects quickly. They can buy, develop, and sell without relying on the sale of another project or investment.
Why Bridge Direct is is the First Choice to take out a bridge loan?
Bridge Direct is a direct lender that can give you a guaranteed instant decision on all bridging loan applications. Their experienced team have over 30 years of loan experience and will help talk to you through the process and find the best possible deal for you and your situation.
You can call the Bridge Direct team on 020 3126 4969 or complete our contact form, to get your free instant decision today!