Most common uses for Bridging Finance

Most common uses for Bridging Finance

11:05 AM, 30th March 2016, About 6 years ago

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Bridging Finance is often the fastest and most flexible way of raising capital and the most commonly used purposes can be split into 3 categories.bridge

 1. A property is unsuitable for mortgage purposes

  • Renovation: If a traditional mortgage would not be approved such as when a property has no bathroom or kitchen, a bridging loan could be used to renovate a property.
  • Development: Bridging Finance can be used to change a single dwelling into multiple units, or alter an existing property structurally or cosmetically with a view to selling or refinancing.
  • Unmortgageable properties: Funds can be used to carry out works until a traditional mortgage is agreed. This is useful when the property is not in rentable condition, or a mortgage offer is dependent on work being completed before the release of funds.

2. Speed on completion of funds is required

  • Auction purchases: Where completion must take place within 28 days of the agreed sale and a short term loan is required to make sure the deposit is not lost and the property can be secured.
  • Where there are temporary cash flow issues that require a short term cash injection using bridging finance as a quick solution.

3. Need to raise finance for a business

  • Funding for a new business: Bridging can be a way of getting a business off the ground
  • A Bridging loan can be used to address temporary cash flow issues and overcoming tight financial deadlines.
  • Tax purposes:  If a business receives a tax demand and funds cannot be raised within the time allowed then bridging finance can be considered.

Bridging Finance was one of the fastest growing niche lending sectors that sprung up after the credit crunch. Many lending firms with money that pulled out of the mortgage industry sought a more profitable return and entered the commercial Bridging market offering a much improved selection for customers than the standard high street lenders who entrenched and pulled lending criteria.

Many lenders now even offer off the shelf Bridge to mortgage options where you can get the Bridging finance and its replacement long term mortgage/BTL agreed at the same time.

As Bridging finance is still mostly a bespoke loan and assessed on an individual project or business plans merits rates and criteria can vary widely dependent on a lenders perceived risk and the margins for profit built into a project.

Key factors in a property secured bridging project for developments and refurbs are:

  • Purchase price of the land or building
  • Planning permission
  • Working capital available from the borrower
  • Experience of the borrower
  • Costs to complete
  • Gross Development Value (GDV)
  • Exit Strategy

The more profit available, the lower the loan to value, and the greater the security the better the terms you will get.

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