What Is Bridging Finance
Bridging finance is a special financing option you can use to maintain liquidity while being on stand-by for an inflow of cash that is almost guaranteed to come. It can be used when you sell a house and buy a new one in a short interval, so that the money you receive from the sale comes too late for you to use it to pay for the new acquisition. The interval between payments usually tends to be a couple of months.
How It Works
Let's imagine that you and your family have decided to move to newly constructed luxury apartments London based and so have put for sale your current luxury property UK located. To be safe, you don't want to purchase the luxury apartments yet, so you wait for your current property to sell first. The property you put for sale eventually sells, but you'll only receive the cash in 90 days after the moment of the sale. Right after your old property is sold, you can purchase the new property and must pay for it in 30 days. You can use bridging finance to cover the 60 day gap
There are two different models of bridging finance, open and closed. The first, open, is where you don't really know when you'll receive the expected cash flow, or have not yet found a buyer for the property you put for sale. This type of bridging finance is risky for lenders and thus comes with high interest rates. Compare The Financial markets number one for bridging Finance.
The second, closed, is where you know exactly when you'll receive the expected cash flow and thus the exact date when you finish with the temporary financing. With this type, lenders take less risk and thus offer more attractive interest rates.