Short-term bridging loans allow you to bridge the gap between purchasing a new house and selling the old one. The lenders design these loans to help people buy a property before closing a sale. It is a secured loan, and the borrower uses the equity in the old house as security. However they can also be used to secure business funding quickly using the available equity in your home.
The most general reason for taking out a bridging loan is to buy an investment property. It is a secured loan. However they are now commonly used to assist businesses get access to much needed funds quickly.
Who should apply for a bridging loan?
This loan can be helpful in the following scenarios.
- People who invest in property can use this loan as business finance. They can invest in multiple commercial investment opportunities.
- If you cannot manage the minimum deposit payment of your new house without selling the previous one and you are having difficulty in selling, you can consider borrowing money via a bridging loan.
- People who want take advantage of a new investment opportunity whilst waiting for their property to sell.
- If you wish to downsize to a smaller house and expect to gain enough profits from selling your old home to cover the cost of their new one. It will therefore eradicate the need for permanent financing.
- If your business needs urgent funding, you can get a bridging loan from business loan lenders.
- Help to cover an unexpected business expense
- To take advantage of a business opportunity too good to pass up.
- To raise funds for your upcoming projects.
- You can use short-term bridging loans to consolidate business debts to free up cash flow while waiting for a property to sell.
How to get a bridging loan?
To get a bridging loan, you have to approach a specialist for business loan lenders because not all finance companies offer it. Either approach them directly or investigate through your agent. The procedure is similar to any other loan application. After submission, the lenders will evaluate your application and process to gain approval.
Bridging loans can be costly business finance. It is because of the higher interest rate and a range of fees the lenders provide these loans at a high rate of flexibility and they can be suited to meet your needs. But as bridging finance is becoming more popular among customers and less professional, it is now easily obtainable. The increasing popularity has led to more lenders in this field, more competition, more options, and better outcomes.
Short-term bridging loans have monthly interest rates. They are costlier in comparison to a normal home mortgage, however are not a long term options. Go for a bridging loan only when you are confident about the investment and do not need it for a long-term basis. You can also choose to capitalize interest. It means that you will not pay the interest monthly. Instead, you will pay it at the end.
In bridging business finance, you can obtain a maximum of 75% of loan-to-value (LTV) ratio. But, you can also take out the second mortgage loan. At an individual level, the loan amount depends on your financial conditions, project evaluation report, credit history, and the amount you want to put forward as a deposit.
Final Words
You can get a bridging loan in as little as 1 - 2 days, depending on the complexity of your project. It will also depend on the business loan lender that you approach.