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Bridging loan – How it works

Bridging finance is a comparatively straightforward financial product. It offers a flexible and cost-effective alternative to conventional loans and mortgage.  It is not until you see a bridging loan put to use in a practical context that the potential benefits of the facility become clear.

Having already received a decision in principle on a bridging loan, the buyer is able to access the funds needed to pay for the property in full before the four-week deadline. In the course of the next six months, the property will be renovated and refurbished. Upon completion of the project, the market value of the development has increased to around £1.5 million. The bridging loan is repaid and the remaining profits are retained by the developer. By making use of affordable bridging finance, the investor has made a significant profit over the course of just six months. This is by purchasing and renovating a property no conventional bank would be willing to lend against.

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Bridging finance is a short-term facility for time-critical property purchases, investments and outgoings. A bridging loan can often be accessed within a matter of days, and repaid six to 12 months later. Eligibility for this is determined primarily on the basis of the availability of assets to secure the loan. Some lenders set limitations on minimum and maximum loan amounts – often from £100,000 to more than £10 million in borrowing. There are no upper limits to how much can be borrowed and that is if sufficient equity is provided to secure the loan. Monthly interest rates can be as low as 0.5% or less. A typical mortgage loan can take several months to arrange. And a bridging loan can be organised and accessed within a matter of days. 

Tags: financeLoan SchemesShort-term

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Global Business Review is a online print magazine focusing on the updates and information about on emerging markets, Finance, Banking, Technology. Global Business Review provides news, features, analysis, commentary, and interviews from industry across the globe.

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