In the latest series of our bridging loans articles (previously we’ve discussed mortgages and an overview), we want to focus on the UK market. Most people do not know what the real meaning of a bridging loan as this kind of financial product isn’t actually widely offered in the UK and as such doesn’t really have much of a public profile. Hopefully this guide will put it all into perspective for you.
The Basics of Bridging Loans and Finance
A bridging loan lends money to a person or company who is borrowing it to meet his or her financial requirement – typically for property purchases over a short period of time where capital is needed quickly and the time frames involved with a high street standard lender might take too long to complete.
A bridging loan will be agreed over a short contract can be useful for over short term financial crises too as it is typically highly flexible and has no specific conditions that require the borrower to fulfill other than interest rates and repayments. These loans can be applied for by anyone residing in the United Kingdom and banking institutions or lenders usually offers these loans with a caveat of swift repayment terms and higher interest rates (visit the Bank of England to see the latest rates that could effect your application).
Commercial Bridging Loans
There are various types of bridging loans available – for example there is a niche involving commercial bridging loans (also known as hard money loans in the United States: Source Investopedia). Business owners can remedy a gap or shortfall in their businesses with such agreements.
The Benefits of Bridging Finance
- A bridging loans will help the borrower to face the financial needs until he secures a permanent loan with a more traditional agreement – e.g. from a UK high street lender (think Lloyds, HSBC, NatWest, RBS, Barclays etc).
- Home owners can gain control over their financial situation until they buy or sell their homes.
- Some people even make use of such a loan option to purchase some commercial properties such as hotels, retail business and industrial properties, refinance their property and to deal in real estate.
Generally while dealing with a commercial property the person would need a long term loan to sign the deal and with this loan package.
Should You Take One Out?
Well, as with any financial product that’s entirely up to you. What we would say is that don’t jump into it. Make sure you examine the interest rates, the repayment schedule, as well as what penalties you could incur for late payments, or extending the loan period out. Here some additional thoughts that we think you should consider.
Can be closed within a short time
Bridging loans are designed to close much quickly than other loan types. This makes it a good option when a person needs fast cash to finish off the deal of a commercial property or other deals of businesses. This advantage offers the buyer to close the deal at a quicker pace based on their financial condition. Both the individuals and firms avail these loans as it eradicates the need to file for bankruptcy.
Easy and quick availability
When a person is searching for bridging loan providers they will find many companies offering such loans with fast approval processes. You can even get these loans approved within a period of 48 hours. Even if other conventional lending firms have rejected loan applications, these loans offer a helping hand to them while in need. Though the companies with check the financial situation of the borrower, there won’t be any credit check footprints left due to searches for approval being completed using what is called a “soft search”. In the United Kingdom there are some well-established firms and brokers that follow this practice (click here for an example UK bridging loan broker where you can see how the lay out terms, conditions, and caveats).
Easy repayment option but perhaps higher interest rates
Bridging loans in the UK offer easy repayment options with sometimes higher interest rates which aren’t always a massive issue due to the borrower repaying so quickly anyway – especially if the borrower pays up on time. The dates of repayment of the installments can be discussed between the borrower and the banker to make it easier to repay each month.
Our Conclusion on UK Bridge Loans
Bridging loans can be a perfect solution if you need quick finance for a large property deal, and can’t wait for your traditional lender to agree on, and finance the situation. However, if you do decide to go ahead, you must make sure that you continue with a standard loan application, and once that comes in and is approved, pay the bridging loan of in full so you don’t incur large interest rates and penalties.
PS: We forgot to mention when we originally published this advice that check to see that any lender is registered with the Financial Ombudsman and doesn’t have any filed complaints on record.