A bridging loan can be an amazing solution if you find yourself needing short term finance. In this guide, we list the main reasons why people opt for this type of loan so you can decide whether bridging finance is the right choice for you.
7 Reasons To Consider Getting A Bridging Loan
1.To buy a property when you still have another to sell
This is a common reason for applying for a bridging loan as it enables the purchase of a property to go through while you wait to sell your existing one.
Finding yourself caught up in a property chain can leave you short of the funds and waiting for a sale may result in missed property opportunities. However, with a bridging loan, you can still progress with your new property purchase, then repay the short-term loan once you have sold your current home.
2. If you need short-term working capital
Commercial bridging loan broker Finbri explains that many businesses and enterprises can find themselves needing short-term funds, for example because of a temporary drop in cash flow. A commercial bridging loan can be used to bridge this shortfall, as well as to finance stock or buy new equipment. Stephen Clark, from Finbri says “This type of loan is versatile and has many applications, from purchasing commercial property to funding management buy outs. Finance issues facing UK businesses are so varied but a typical asset secured loan can more often than not be a solution.”
3. To buy land before planning permission has been granted
Developers often apply for a bridging loan when buying land that has yet to have planning permission put in place. Without planning permission, many lenders will be reluctant to approve a long-term mortgage loan. Should this occur, a short-term bridging loan may be used to fund the initial land purchase, if the developer is sure that the planning permission will be granted.
4. If you have been refused credit
If a poor credit history means a borrower cannot obtain a standard loan, some bridging finance providers may consider a short-term loan application. However, it is important to be aware that the lender will require security in the form of property or commercial assets to guarantee the bridging loan.
5. For developing an uninhabitable property
Many standard mortgage lenders are unable to offer a loan for the purchase of an unliveable or dilapidated property. In this case, you may consider a bridging loan to make the initial property purchase and fund the construction or renovation work. Once the property is in a liveable condition, a mortgage loan can then be put in place.
6. Buying a property at auction
Purchasing at a property auction can be a fast-paced process but applying for a standard mortgage can take more than a month to complete. To be able to complete on an auction property sale in time, you could opt to use a bridging loan. This short-term loan can then be paid back once a long-term mortgage on the property is obtained.
7. Settling an unexpected tax bill
An unexpected tax bill could leave a business with a funding shortfall and unable to pay the outstanding amount by the deadline. With a bridging loan, the tax levy can be paid without the business incurring any late payment fees.
Always get the right advice
With so many different reasons to consider bridging finance, it is recommended that you seek expert advice before planning to apply. A specialist broker can talk you through the whole process so you can be sure a bridging loan is right for you.
