Bridging loans are a common type of finance, that can be used both for personal and business customers and have a variety of uses. In this article we will focus specifically on how bridging finance can help when purchasing a property. Essentially bridging finance, also known as ‘gap financing’ or a ‘swing loan’ is a short-term loan that bridges the gap while awaiting longer-term finance to become available.
Purchasing Property With Bridging Finance
There are several different scenarios in which bridging finance may be appropriate when purchasing a property such as:
- Buying a property at auction
- Renovating a property
- When part of a chain falls through
- Purchasing an uninhabitable property
Property Purchased at Auction
Property purchases are one of, if not the largest purchase that most businesses will make, and in most instances the purchase of property will require finance. When purchasing a property at auction it would be difficult to use a traditional mortgage, as arranging a mortgage is a lengthy process and you usually only have 28-days to get finance into place. Bridging finance, which is much quicker to arrange, can help the purchaser secure the property for an agreeable price at auction, use the loan to cover the purchase and then secure a traditional mortgage to pay off the bridging finance.
Property Renovations and Chain Issues
When purchasing a property that requires renovation you may prefer to retain your original premises while undertaking the renovations. In this case you would still be paying for the mortgage on your existing property, meaning that the equity would not be available when completing on the new property, or for the renovations. In this instance a bridging loan can bridge that gap while waiting for the existing property to sell and can also be used to help fund the renovations in some instances.
Likewise, when you are in a chain and part of that chain collapses meaning that your current property cannot be sold in time to fund the new property purchase, a bridging loan can be used enabling you to complete on the new property in time. Without a bridging loan the entire purchase may fall through or be too severely delayed to meet the needs of your business. In both scenarios upon the sale of the existing property the bridging loan is paid off.
Purchasing an Uninhabitable Property
Mortgage companies have very strict criteria when offering a mortgage. Most companies will not provide a mortgage on an uninhabitable property. In this situation a bridging loan can fund the gap between purchasing and renovating the property, once it is in an inhabitable state the option of a traditional mortgage becomes available. Securing a mortgage enables you to pay off the bridging loan.
Key Features of Bridging Finance
Bridging finance is a short-term loan to cover the gap before longer term finance becomes available. Widely used for property purchases, this type of finance can be hugely beneficial, however, you should contact an experienced business finance broker such as MC Commercial Finance to discuss your requirements. Some of the important points to note about bridging finance include:
- It is a short-term loan
- Interest rates can be higher
- A clear exit strategy is required
- Most loans are closed term meaning that there is a fixed date for repayment
- Bridging loans usually require a source of collateral
- Borrow between £5000 and £250 million
- 65%-80% typical loan-to-value requirements
- Finance can be secured in as little as 24-48 hours
- Funds are usually received within 2-weeks
Securing Bridging Finance
As with all finance, it is best to get expert advice to ensure that you are choosing the right finance for your business. A finance broker is well placed to look at your business strategy and advise you on your finance options. Brokers such as MC Commercial Finance have access to a huge range of deals from an array of companies. There are often special rates for loans secured through a broker, and a broker will have experience working with different finance companies in different scenarios and will therefore, be best able to gauge which company would fit the requirements of your business.
Contact MC Commercial finance today to discuss your business, and how a bridging loan could help finance your company’s next property purchase. We offer a full range of business finance broker services and can help ensure that your company gets the best deal. We do all the paperwork, meaning minimal hassle for you and a loan secured as quickly as possible.