A Closer Look at Bridging Loans

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While conventional loans, overdrafts, and credit cards are all invaluable for multiple reasons, they tend to be too limited in scope and too slow to handle various requirements. When you need a huge amount of money over a short period, you may want to look into bridging loans. But just what are they and how can they be of help?

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Well, bridging loans are specialist financial products, offered in sums of at least $30,000 to be repaid within 12 and 36 months. These types of loans do not have monthly payments and are more appealing to property developers and businesses that routinely need to ‘’bridge’’ their financial gaps.

What are the benefits of bridging loans?

Bridging loans come with several appealing benefits including:

1. Fast Payments

With a bridging loan, you can be certain you’ll get the lump sum of money in no time, usually faster than conventional loans.

2. Low Borrowing Costs & Competitive Rates

A bridge loan is a financial product that is designed to be easily accessible and affordable at the same time, particularly for business or property developers that require huge money sums in a short period. They are accessed through top-of-the-line independent service providers and the total borrowing costs are usually competitive.

3. Simple Application Process & Lending Criteria

When it comes to bridging loans approval all comes down to the merits of the applicants and their credit scores rarely come into the picture. Also credit arrears and proof of income may be insignificant.

4. Available for All Purposes

As long as the use is legal, you can use a bridging loan for practically anything. This creates a way to take advantage of a time-sensitive investment opportunity that you would have otherwise missed. All the lenders need to know is if you can be able to repay the applied amount.

Exit Strategies

When it comes to loans, an exit strategy implies the formula by which you will repay the loan balance. It is imperative to ensure you have a realistic and practical exit strategy. This is especially because bridging loans are not meant to be used as long-term financial products. A shorter repayment period tends to attract a higher monthly interest, regardless of the loan. This translates to excessive costs if you do not repay the bridging loan as initially agreed. If you do not pay the loan on time, you may attract penalties, renewal fees, and additional charges.

A bridging loan exit strategy can only be feasible if it makes financial sense. For instance, an applicant with credit issues is less likely to have the ability to refinance in six months. As such, this wouldn’t be an ideal exit strategy. However, selling during the same period may be acceptable. An example is selling a property. You can tell you’ll get the money at some point, but you can’t guarantee when exactly it will happen. As soon as the property sale occurs, you use the money to cover the balance on the bridging loan. If you experience any major concerns or discrepancies, then that is not a good exit strategy.

Are there alternatives to bridging loans?

There are various bridging financing alternatives, but they depend on the requirements that could deem appropriate. Examples include commercial and standard mortgages, commercial loans, equity release, development finance, and secured loans.

However, in all these instances, delays are common when it comes to securing the funds. If you are looking for financial support to bridge an instant gap, then bridging loans prove to be the best solution. Nevertheless, it is advisable to consult professionals before you make any big decisions for such financial products.

Always seek independent expert advice beforehand in order to carefully consider all options available to you. By working with a reputable broker, you’ll have access to the biggest market of independent and established lenders across the country, providing an unlimited range of flexible and dynamic financial services.

Purchasing Properties at Auction

Bridging loans are also popular for people looking to buy properties at auction. More often than not, a successful bid at an auction implies paying the initial 10 percent deposit upon a successful bid, and the rest of the amount in no more than 28 days. Since it’s almost impossible to acquire such funds through conventional loans and mortgages in that timeframe, bridging loans provide a viable solution.

However, ensure that you have a solid exit strategy In place to ensure you pay the loan in the agreed timeframe.

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