Bridging Loans - Are They Right For You

Bridging Loans - Are They The Right Loan For You?

Bridging loans are usually taken out when a person or company has a short term need for some large capital amount, where the loan itself can be secured on a property or lot, where the applicant can receive up to 85% of the loan to value ratio as a ‘bridging’ loan, although there are some companies that in some situations will extend 100% of the LTV to specific borrowers. In general these loans are used when purchasing a property without having completed the sale of your own property, so in effect these bridging loans ‘bridge’ the gap in time between your sale and the purchase of another property where your sale is delayed, or your purchase is delayed and you need these funds to secure your desired property.

With lots of different options depending on situations, these loans are almost always of a short fixed term, six months being standard. All bridging loans are secured on property, with the amount that you secure going from 30,000 up to 10 million, as always though dependant on the property. As with all property secured transactions, securing a bridging loan quickly is not normally a problem, with the added bonus that you’re not limited to exactly what you do with the bridging loan funds that you receive.

Bridging Loans - Are They The Right Loan For You?

With their short terms, bridging loans are not always the best option for everyone, but they do fulfill a need in the housing market and in most instances do not become a burden on the prospective homeowner. That being said, bridging loans are becoming increasingly popular on both sides of the Atlantic as a method of securing short-term capital for small business owners and those looking to start a business.

With the ability to have a short-term loan secured on property, this can indeed be the solution for small businesses that need a short-term injection of working capital to get through a period of unrest or uneasiness in their markets. However, these loans should not be looked on a as a cure or resolution to problems not brought up by a small shortfall in ordinary business – remember, if not repaid in a timely manner, your property will be at stake for the security of that loan.

As with all loans, there are a couple of options to the standard – ‘closed’ bridging loans (as described above regarding home purchasing with 2 parties involved), ‘open’ bridging loans (this is common when the property to be purchased is not yet chosen and no pending sale on current property). If you decide to go ahead with this type of loan, do know your credit score beforehand, the amount you’re looking for, and do some research before hand, as there are a lot of options to choose from.