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Bridging Loan Examples
A bridging loan is a valuable boost to your finances if you need some short-term funding. While many long-term financing options take weeks to complete and come with payment plans that can last for years, bridging finance is a quick solution for land purchases and business development.
To help you understand how bridging finance differs from traditional loans, we’ll explore some examples of when you might apply for a bridging loan.
As you probably know, the lucky few that can get a mortgage will have to prove they have a strong credit history and can handle the repayment plan.
Most mortgage plans are repayable over up to 35 years, but flexible plans enable homeowners to pay them off quickly.
Bridging loans, however, are typically repayable within 12 to 24 months – which means you can use the extra funding but will have to pay it back quicker than a mortgage.
Why Use Bridging Loans to Purchase Property?
Speed of transaction
The property market is competitive, and buyers need to present themselves as attractive prospects to secure the home of their dreams. In most cases, sellers will look more favorably on a cash buyer because it means less time to wait when processing the mortgage.
A bridge loan is essentially a cash payment to fill a stop-gap, so many house hunters use them to secure a property. Because of its speed, purchasing land or property with this type of loan means sellers and estate agents will regard you as a cash buyer.
A classic example of when bridging loans are successful in buying a property at auction. The more upfront cash you have, the more realistic your chances of winning a bidding war are.
Flexibility for people with unstable incomes
Freelancing and self-employment are popular ways for people to earn an income without the stresses of office life. The Covid-19 pandemic means many people are evaluating their future, and more will likely choose to enjoy the flexibility of working from home.
One issue this presents is obtaining a mortgage. Lenders are wary of providing self-employed people with long-term loans, but property bridging loans can quickly fix this.
The bridging finance would be secured against the value of the property you purchase, making it an ideal solution if you can’t guarantee a yearly income.
Loans to Downsize a Current Property
When the kids decide to leave home, many people find themselves rattling around in a larger house and decide to downsize. Not only does downsizing free up some cash, but it also enables parents to help their children get onto the property ladder.
A bridging loan can enable sellers to get their house ready for the property market or enjoy a slower search if they’ve sold their property but haven’t found a new home yet.
Covering Relocation Costs
If you’re planning to relocate to a different area, it might be challenging to sell your property and find a new one all at once. The typical scenario is when people find their dream home but haven’t secured a seller for their current property.
Using a bridging loan means people can put an offer in on a new property and secure it while waiting to sell their own.
Commercial bridging loans have the same premise as residential loans, but they’re used to secure commercial property. This includes businesses, hotels and bars.
Commercial bridging loan example
For example, if you want to purchase a business at auction, you’ll need some upfront cash to make the transaction and outbid your competitors. While mortgages and other loans for commercial companies can take weeks (or even months) to go through, a bridge loan application can be complete in at little as seven days.
You can use the money to purchase the property, but you’ll need to secure commercial financing to perform works on the property.
Are commercial bridging loans worth it?
A bridge loan on a commercial property is an excellent option if you want to secure a commercial property but lack the immediate funds to do so.
The interest rate will probably be higher than residential property loans. While the housing market remains fluid, commercial property can be subjective to the area, economic trends and consumer demand.
Buy to Let Bridge Loan
Most landlords want to complete property development work to ensure an excellent rental income but need to use their money to secure a property.
A residential bridging loan enables people to purchase a property and use their savings to complete refurbishments.
After the renovations are completed, you can choose a long-term financing repayment option and repay the bridge loan.
Agricultural businesses often find themselves directly impacted by the economy. It’s one of the most volatile industries, despite farmers producing essential food and drink items.
The most important thing for farmers to do is stay in line with current trends and look at how to provide consumers with what they want.
More people are seeking out cruelty-free produce in recent years, such as free-range eggs and grass-fed dairy. A farmer could apply for a bridging loan to buy extra land, which would then be adapted into a free-range area for livestock.
After securing the land, the farmer could then apply for development financing and repay the loan.
Things to Consider When Choosing a Bridging Loan
Bridging loans are ideal solutions if you want to finance a residential or commercial project but lack the immediate funds. While they’re an effective way to fund your property, you should consider some essential factors before deciding.
Do you have a clear plan in mind?
Bridging loans are short-term solutions, but you should go into getting one with a long term outlook. What do you plan to use the loan for? How will you pay it back?
For example, will you sell your existing home once you secure another property with bridging finance? Or is that plot of land going to be a wise investment?
Having a clear plan in mind (or exit strategy) means you can be sure that you’ll be able to pay the loan back.
In some cases, if you fail to make your repayments, the lenders charge high interest rates, and your property may be repossessed.
Are you clear about interest rates?
Regular loans have a standard interest rate, which increases if you don’t meet the repayment structure. But with bridging loans, you can defer the interest until you settle the loan amount, which gives you more flexibility.
You will, however, need to make sure that your exit strategy is viable enough to incorporate the deferred interest.
Zero X Finance Can Help You With Financing Options
When it comes to sourcing the right bridging loan, our team of specialists are experts in providing cost-effective solutions for purchasing both commercial and residential properties. We’re registered in England and Wales and authorized and regulated by The Financial Conduct Authority.
We’ll discuss the loan amount required and help you with the legal aspects of monthly payments. A bridging loan could give you added security when purchasing a property, and as long as you can keep up repayments, you’ll have a short term finance solution that can provide long-term financial growth.
Call our registered office today to discuss your needs, and our specialists will discuss any questions you have about deferring monthly interest payments and the exit fee.