Bridge Finance
For substantial short or medium term finance requirements
Bridge Finance
Bridging Finance can offer an adaptable financial solution for a variety of short to medium term needs. Bridging Finance products are often offered as specialist solutions targeting a specific need, and below we have summarised some of the common types, such as; Development Exit Finance, Auction Bridging Loans and Refurbishment Bridging Loans. However it should be noted that Bridge Finance can support a wide range of situations where funds are needed swiftly for a short to medium term, or as an interim solution before long-term funding can be put in place. Bridging Finance is typically used for requirements that last for anything between a few months and a few years, with options to service interest during the term or roll it up into the loan. When Lenders assess a Bridging Finance application they may focus more on the security offered and the logic of the declared repayment strategy, and there may be less focus on the profitability of any underlying or connected business, income, or credit profile. Bridging Loans can therefore provide a versatile financial solution, adaptable to various needs beyond the examples mentioned below.
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Development Exit Finance
Development Exit Finance is a form of bridging loan used primarily by property developers to repay outstanding property development finance as a project nears completion. This type of finance is particularly advantageous in scenarios such as when an existing development finance facility is ending but sales are incomplete, for reducing finance costs as it can be more affordable than development finance, and for releasing capital from a development before finalizing sales, thus enabling developers to embark on new projects.
This type of finance is advantageous due to its lower risk and associated costs as the project approaches completion. It typically offers a maximum Loan to Value (LTV) of up to 80%, with flexible charge types (1st, 2nd, & 3rd considered) and terms ranging from 1 to 36 months. Interest types are varied, including added to the loan, deducted, or serviced, and completion timescales can range from 5 days to 3 weeks.
Auction Bridge Finance
Auction Bridge Finance is an ideal solution for those looking to purchase property at auctions, where the necessity for quick transaction completions is paramount, often within 28 days as stipulated by auction houses. Upon winning a bid, it typically requires a deposit (e.g., 10%), with the balance due shortly thereafter. Known for rapid approval, Auction Bridge Finance is well-suited for various property types, including residential, commercial, multi-use properties, and land – raising finance against development land with or without planning permission in place is possible.
The key features of Auction Bridge Finance are quick arrangement, flexible assessment criteria in respect to income & credit history, and emphasis on a viable exit strategy. Having a bridging loan agreement in principle before the auction can offer a distinct advantage in this swift-moving environment. Particularly beneficial for properties that may not qualify for long-term mortgages, such as uninhabitable buildings, vacant commercial properties, and land, Auction Bridge Finance helps buyers to effectively capitalize on auction opportunities.
Refurbishment Bridging Loans
Refurbishment Bridging Loans are a special type of short-term financing designed to cover the costs associated with refurbishing properties. They come in two main varieties: light and heavy refurbishment loans, depending on the extent of work needed. These loans are particularly useful for individuals looking to refurbish a home for sale or simply to enhance its value.
The loans are typically disbursed in two stages: the first stage assists with the purchase and is based on the current property value, while the second stage, following refurbishment, reflects the property’s enhanced value. Typically, the borrowing limit can go up to 75% of the post-refurbishment value, allowing a substantial amount for carrying out the necessary refurbishment work. They can serve as an excellent alternative when traditional financing options are slow or unattainable, ensuring that funds are made available to refurbish a property and uplift its value.
There are often some other options that should be considered as an alternative to a standalone Refurbishment Bridging Loan, depending on the specific project plans. Some lenders offer a financing solution where both a bridge loan and a subsequent buy to let loan are agreed at the outset, with the switch from the bridge loan to the buy to let loan being triggered at a pre-agreed point in time, i.e., after refurbishment work has finished. Other lenders offer a single Buy-to-Let (BTL) loan product that allows for refurbishment work to be completed before the property is occupied and let.
The application and approval process
The application and approval process for Bridging Loans is often streamlined for speed, typically faster than other loans. It primarily hinges on the value of the security provided and a clear exit strategy detailing how the loan will be repaid. With less emphasis on credit history and more on the asset’s value and the repayment plan (Exit Strategy).
Interest rates & fees
Where annual interest rates are usually quoted for long-term loans, Bridge Finance rates are typically quoted on a monthly basis. Interest is usually rolled up until the loan is repaid, so in this situation the maximum loan size must account for this interest rollup. Alternatively, the option to service interest during the loan term may be available if income is available to do so.
Exit strategy
When considering Bridge Finance the repayment plan, or exit strategy, holds paramount importance for both the lender and the borrower. For lenders, it’s crucial in assessing the loan’s viability and the borrower’s repayment capacity. On the borrower’s side, a well-defined exit strategy ensures adherence to the agreed loan term, mitigating risks of breaching the contract. It underlines a clear roadmap for loan repayment, safeguarding the borrower from potential financial pitfalls and aligning with the lender’s risk assessment parameters.
Here are some examples of exit strategies that provide a clear path for both repaying the bridging loan and transitioning to a more financially stable position:
- Refinance: Transitioning from a bridging loan to a long-term loan such as a mortgage, securing a more stable and often lower-cost financing arrangement.
- Asset Sale: Utilizing the proceeds from the sale of the subject asset or another asset to repay the bridging loan, thereby fulfilling the financial obligation and exiting the loan agreement.
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questions
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Answers
Yes, we charge a transparent and fair fee of 0.5% that's typically payable at the end when the loan completes, and in our opinion borrowers should be extra cautious if a broker ever offers to work without charging fee. In these circumstances the broker's income may be based solely on commissions paid by lenders, and commissions vary significantly between different lenders, so the borrower needs to be confident that the broker is not inappropriately influenced by lender commissions. It is critically important that the broker has the borrowers best interests front & centre when presenting choices and making recommendations. Our fee is modest, and if you take a look at what it represents as a portion of borrowing costs over the loan term, you'll see why we're confident it will be far outweighed by the savings we achieve for borrowers and the value of the close support and guidance we offer.
Bridge finance is short to medium term funding used to 'bridge' a gap until. Often the it bridges a gap until long-term funds can be put in place, or until an asset is sold.
Approval and disbursement can be rapid, often within days, depending on the lender and application.
They're typically used for property purchases, auction buys, development, and covering short-term cash flow needs.
Usually a few months up to a few years, designed for short to medium term financial requirements.
Bridge loans are faster, shorter-term, and more flexible in criteria than traditional long-term loans. But they also tend to be more expensive than long-term mortgages
Yes, bridge loans usually require property or another high-value asset as collateral.
Generally, yes. They have higher interest rates due to their short-term nature and rapid access.
Absolutely - for any legitimate business purpose. Businesses often use it for urgent cash flow needs or quick property purchases.
Yes, bridge loans can be refinanced, typically the appropriate refinance is onto a long-term loan like a mortgage. It is often possible to refinance to another bridge loan if that becomes necessary, but that's often something to be careful about because it could be suggest that the original repayment/ exit strategy failed, or that a long-term finance need being funded with a product that is designed for a short/ medium need. We will always want to fully understand your exit strategy so that we can advise you at the outset as to the most appropriate finance options.
Rates vary, but they're typically higher than long-term loans, reflecting their short-term, flexible nature.
- Check Bridge finance current pricing
Often it s possible to get a bridge loan with bad credit as the focus is more on collateral value than credit history.
LTVs up to 70-75% are common, though it can vary based on the lender and property type.
- Check Bridge Finance current Max LTV
Repayment is typically through refinancing, selling the asset, or using cash from other sources.
Exit strategies are plans for repaying the loan, crucial for both borrower's and lender's security.
It provides funds for property refurbishment, disbursed based on current and post-refurbishment property values. However, we should discuss the other alternative finance products to determine which is most suitable to make your needs.
Yes, if they have sufficient collateral, startups can access bridge finance for urgent needs.
Less emphasis is placed on income; more on collateral value and exit strategy.
Yes, they can be structured to cover financing for multiple properties if needed.
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