Bridging finance is generally described as a short-term loan which is normally secured against property. Property can include land, residential and commercial property or occasionally other tangible assets with proven value. The loan term can be for as little as a few days and up to a couple of years. Generally, the borrower will use this facility for the shortest amount of time and repay the loan from the sale or refinance of the property.
The nature of bridging finance means that monies can be organised and available in days rather than weeks or months. Bridging companies have in-house lawyers, approved panel surveyors and specialist underwriters who can ensure a transaction is completed within the timescale required. Bridging lenders can often accommodate second charge lending and in one or two cases even third charge. However, a first charge will nearly always secure the best terms.
Bridging finance can be used in many ways;
· Release quick capital from an existing property
· Complete on a property bought at auction
· Purchase a property whilst waiting on the sale of another
· Purchase and refurbishment of a property pending the sale or refinance of it
· Temporary funding on an un-mortgageable property pending repairs
· Drive down the vendor asking price on a property because of the ability to complete quickly
· Acquire a commercial property and have time to add value prior to securing a longer term traditional commercial mortgage
· Help to resolve a short-term cash flow situation
· Loan to values of up to 100% (with additional security)
The use of bridging finance is wide and varied and lenders typically charge on a monthly basis. A monthly charge of 1.5% on the outstanding balance is not unusual, however, charging is generally risk-based and therefore rates can be lower as well as higher than this. The borrower will also need to consider the cost of the lenders legal fees, the valuation costs and any arrangement fees, these costs are all disclosed at outset, so there are no nasty hidden surprises.