What are Bridging Loans and How Can They Help You
Bridging loans are a type of short-term loan. They are primarily used for buying real estate, usually in emergency situations when someone needs quick cash. Collateral is required for these loans, so the borrower must have assets that can serve as security.
Security on the loans is usually property it can be residential either properties or developments, the same for commercial, either property or developments. You can also use a mixture of commercial and residential property as well as land, offices, and retail locations. As you can see in order to use bridging loans, you must already hold property to be used as security on the bridging loan.
The amount you can borrow varies but is usually between 30,000 and 10,000,000. It is however, limited to a standard base line percentage of the property that is being used to secure the loan. This means that it is based on the market value that is assessed on the security being used. For residential it is typically around 85%, undeveloped land it is around 70% and for commercial it is around 65%. If additional securities are added to the collateral, then these percentages may change.
You may apply for bridging loans for a variety of reasons. You could be buying an auctioned property, or buying a new property when you are still waiting for funding to come from the sale of current holdings. You could also need it for investing in land, or you might use a loan for for debt consolidation, renovations, investments in property, and business funding, among other things. You can also use bridging loans to finance commercial property purchases.
There is a cost attached to bridging loans so be prepared to pay a little extra for this type of short term loan. The cost varies it is usually dependent on the type of property and your credit standing. If you have had bad credit you may end up paying more but the cost is usually set to between 1% and 2.0%. You will also have to pay an arrangement fee, as well as a valuation fee is usually required on bridging loans. The amounts of these fees are subject to change based on the value of the property.
Bridging loans are written by high street and specialist lenders. You should check into all of the options available to you. Specialist lenders often have the best rates, but that is not always the case; sometimes you will find a better rate through a high street lender.
Anticipate that bridging loans will end in around 6 months as they are short term loans. The bottom line is, you’ll have to pay back the full amount. Of course, there are options however to program your bridging loan to continue for as long as necessary.
In essence, bridging loans offer short-term financing for urgent situations, like buying property or to release equity on existing property quickly. You must own property to use as security if you plan on applying for a bridging loan.
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