Property developers and homeowners are increasingly realising the benefits of using bridging loans to finance their projects. However, many people and businesses tend to shy away from bridging finance just because they don’t entirely understand them. They think using a bridging loan instead of a traditional mortgage is either too expensive or too risky. But, that is not always true. When used correctly, bridging loans can be truly helpful and could be your only option in securing a great deal.
Obtaining bridging finance London partly depends on a how efficiently you fill out the application in which all the criteria are met. Each lender has its own set of criteria for bridging finance that a borrower must fulfil in order to get the loan approved. With more than 100 bridging loan lenders in the UK, we thought it worth discussing the basic criteria and breaking down some terminologies with respect to bridging finance.
Bridging Loan Eligibility Criteria
So, how do you get a bridging loan? Well, it is not possible to pen down each small-print term and condition for every lender, so here are some key factors that can affect your bridging finance eligibility.
Age
The borrower must be at least 18 years or older while applying for the bridging finance.
Security
Security is one of the crucial factors in obtaining bridging finance, and each lender have different terms when it comes to what they deem acceptable. A borrower will be required to provide high-value assets, which are sufficient to cover the total loan amount. This could be any type of property, land or invaluable assets, such as vehicles, jewellery, stocks, etc.
Minimum Loan Size
Personal bridging loans usually start from £10,000 while commercial bridging loans have a much higher minimum. Each lender has its own lending requirement, and some lenders will be interested in lending a minimum £100,000 or even higher.
Exit Strategy
The exit strategy defines the plan you present to repay the loan. Bridging finance is a short-term loan, and therefore, every lender would want to understand how you will repay to exit the loan. Some common exit strategies are selling or remortgage of an existing property, selling a business or some shares of it, merging a business or cashing in investments.
Deposit Amount
The size of the deposit amount can have a significant impact on the eligibility of a borrower for bridging finance due to the LTV ratio. The LTV is the amount of the loan with respect to the value of the property put as security. The greater the deposit size, the lower the LTV ratio will be and the less risky for the lender. Lenders often have their own maximum LTV ratio for granting the loan, depending on the type of property and the borrower’s situation. In rare circumstances, some lenders also offer a 100% LTV bridging loan.
Credit History
When you apply for bridging finance, the lenders will also look at the borrower’s credit history to assess their capability of repaying the loan. However, credit history is considerably less important with bridging finance compared to other forms of finance. As long as all criteria are fulfilled and you present a strong exit strategy, most lenders will be happy to lend money even to an individual or company with bad credit history.
Property Type and Condition
Often lenders accept specific types of properties, which may vary from lender to lender. A list of some common property types accepted as securities by the bridging loan lenders are:
Residential:
- Houses
- Flats
- Apartments
- Bungalows
- Holiday homes
Commercial:
- Retail stores
- Offices
- Restaurants
- Factories
- Warehouses
- Petrol stations
- Care homes
- Agricultural premises
Land:
- Farmland
- Development land
- Building plots
- Parking spaces
- Forest
Lenders will also take into account its condition, location, accessibility and potential resale or rental value while considering it as an acceptable security.
Who Can Apply for Bridging Finance?
Bridging loans are available to any individual or company looking to bridge short-term funding gaps. They are usually taken for 1 to 12 months and secured against properties or assets. The common categories of people who can take bridging finance include:
Homeowners – Bridging finance is increasingly used by homeowners around the UK to fund the purchase of a new home before selling their existing home. A loan will be granted against the property they already own. When the property is sold, they should repay the loan.
Homeowners can also take out bridging loans in order to carry out property refurbishment work. If the property is not in good condition, it can be difficult to get a mortgage. But, with a bridging loan, homeowners can restore their property and then refinance on to a long-term finance option.
Property developers – Bridging finance is also often used by property developers and landlords when they want to fund a new deal or undertake a new property development project. Property investors can benefit from bridging loans to secure properties at auction when time is the constraint. Auctions usually require buyers to complete the payment within a month, hence, in such circumstances bridging finance is the only viable option.
Property developers can also use bridging finance when they have found a great property deal and the seller is looking for a quick sale at a discounted price. With a bridging loan, property development loan London can access the funds a lot faster than any other type of loan.
Business owners – Businesses can use bridging loans to make a pressing big-ticket purchase or investment when they don’t have adequate cash in hand to go ahead with the transaction. Bridging loans can solve short-term liquidity problems by offering quick access to funds.
Bridging loans for businesses are not just limited to purchasing a property, but they can also be used to buy something like machinery or infrastructure, expand business operations, pay off a debt, or cover short-term cash flow issues. It can also be used to seize an unmissable business deal that would subsequently increase business profits.
How Do I Get a Bridging Loan?
Bridging loans are not always available from high-street lenders and may require a specialist bridging finance advisor to find the best possible deal based on your funding needs and circumstances. Typically, the bridging finance application goes through the following process:
- Fill out a bridging loan application – Prepare a professional application that presents all the details of your funding requirement, what you wish to do with it, the property or assets put as security and how you plan to repay the loan.
- Submit documents – Lenders will ask for all the relevant documents that support what you have filled in the application.
- Property valuation – The lender will go through a valuation of the property to make sure it is an acceptable security.
- Receive the loan offer – Once the lender approves your loan, they will provide the loan offer, which includes the loan size and loan term.
- Complete the legal formalities to access the funds – After you accept the loan offer, the loan agreement will be signed and the funds will be released.
If you think a bridging loan is the right for your needs, contact a specialist bridging finance broker who will help you understand all the ins and outs of bridging finance solutions and secure the loan at the best rates. Some lenders only work with brokers, so taking the help of the broker gives you access to a wide range of deals.