What Is a Bridging Loan?

Bridging loans are taken out by property developers and investors looking to buy new property or renovate and add value to existing property prior to selling for a profit.

A bridging loan is a temporary, short-term loan secured against property. A bridging loan provides quick access to short term funding, often used as a means of quickly getting the funding in place to buy property (eg: via an auction), or to buy uninhabitable property (where traditional mortgage lenders won’t lend), or to fund restorative work, or buy property below market value.

Before taking out a bridging loan, it’s important to learn more about them and find out what they are, so you can decide if they’re the right option for you.

What Is a Bridging Loan?

Bridging loans are also known as interim financing, gap financing or swing loans. Either way, bridging loans help in times when financing is needed but not available. Individuals and corporations can use them, but they are mostly used by people looking to secure a down payment on their next property.

Property investors can benefit from a bridging loan as they provide quick access to funding when traditional loans are not available. The loan is secured against another property allowing the investor to purchase a new building. Arranging a bridging loan is much more straightforward than borrowing from a mortgage lender. This type of finance enables developers and investors to move forward with projects that are deemed too risky by traditional lenders.

Benefits of a Bridging Loan

The biggest benefit of taking out a bridging loan is the speed in which funds can be released and the lender’s flexibility. Providers of this time of short-term loan are much less risk averse than mortgage lenders who are bound by many rules and regulations that limit the type of projects they can approve funding for.

You can usually borrow between £100k-£2m over a short period of typically 4-12 months. You don’t have to use the money to buy a new property — you could also use it to refurbish or refinance a property.

Bridging loans take your circumstances into account so that you can get the best bridging loan for your specific needs. You may even be able to delay initial repayments of the loan, so you can start to repay the loan when your cash flow improves.

Things to Consider

Bridging loans — due to their short term nature — usually come with higher interest rates than a traditional loan. Typically, the interest rate will be higher than a standard-rate mortgage spread over 30 years.

Some lenders allow interest to be “rolled up” and repaid when the loan is due.

Loans tend to be offered by smaller providers who adopt a more personalised approach to lending, meaning that you can agree terms that meet your business needs.

Bridging Loan vs. Standard Loan

A bridging loan application is quick to secure, so you can get on with purchasing your next property project. The approval and funding process is much quicker than with a standard loan.

This convenience is exchanged for the short term, higher interest nature of a bridging loan. Buyers are happy to accept these terms as they plan to pay the loan off quickly with low-interest, long-term financing taken out on their new home. Some bridging loans have no repayment penalties.

Many bridging loan providers are willing to lend at a higher LTV (loan to value) than standard lenders. Apex Bridging lends on the market value of a property rather than the purchase price. This means that you can effectively borrow up to 100% of the purchase price, a big help if cash flow is an issue.

The Bottom Line

A bridging loan is a perfect solution for a property developer looking to fund a new project. If you don’t have the cash ready for a new property, a bridging loan is a simple solution for a quick cash injection. If you’re confident your current property project will return the profit you need within the repayment terms of the bridging loan, this type of finance can be a great way to overcome cash flow issues and develop your property portfolio. A bridging loan can provide the funding required to purchase or renovate a property and achieve the target return on investment. Short-term interest rates may be higher than those for standard loans, but the benefits of speed and flexibility make bridging loans an attractive prospect for many investors. Waiting for finance from a traditional lender could result in a missed opportunity to buy a profitable investment property.

Apex Bridging can help you secure a bridging loan quickly and professionally. We are a highly respected bridging finance provider that has been operating through intermediaries using the proper licenses for many years. We work with specialist valuers and solicitors to provide our brokers and borrowers with the highest quality of service. Our friendly experts are always available to keep you up to date and assist with any enquiries. Get in contact to discuss more about what a bridging loan is and how to secure one with Apex Bridging.