What Is Bridging Finance?
A bridging loan is a short-term, financial solution, the finance facility is available to anyone who requires fast access to capital, and you can get one from a specialist lender. Still, you will need to qualify for one first.
Bridging loans are short-term, so the loan is taken out from as little as two weeks up to 18 months, but usually, they get repaid within a year.
How much you are eligible to borrow will depend on the value available within the security you offer against the loan.
It is usually no more than 75% of the security that you offer. With a bridging loan, you pay back the interest rate monthly, rather than yearly, and you can defer it until the end of the loan and pay it all then.
The bridging loan interest rates range from 0.40% up to1.5% monthly but this does depend on each lender. There are several factors on what interest rate you will get, including the amount you borrow and the security you put up against the loan.
Additional to the interest rates, there are extra fees to be paid when using a bridge loan. These are things such as valuation fees, arrangement fees and legal fees.
To get a bridging loan, you need security and an exit strategy. Security is the equity in your asset, and this is anything that has value to it, that the lender can use as security.
When you go to a lender to get a bridge loan, they will review your assets that can be used as security and from this, determine how much they are willing to lend you.
The reason for this security is so if anything was to go wrong and you were unable to pay the lender back, they have the right to repossess the asset. The following are some assets of what you can borrow the money against.
- Private property
An exit strategy is also something you have to have in place when getting a bridging loan and you must show to the lender, to prove how the money will be repaid in time.
It is a repayment plan, which ensures the lender that you know how you will repay the loan. An example of this is that you could be using the bridging loan to renovate a house which will add more value to it.
So then when it goes up for sale, you will make more money, due to the increase in value. The lender will know from this, that you will be able to pay the loan back with this plan.
What Can A Bridging Loan Be Used For?
A bridging loan can be taken out by an individual or business and can be used for many different reasons:
- Purchasing a property quickly
- Home improvements
- Using it to buy a property at auction
- Renovating a house
- Inheritance tax
- Repossession prevention
- Used is businesses for stocks and shares
- Financial investment
These are just a few examples of its uses, the most popular one being for buying a property or making home improvements.
A bridging loan is a better option than a home mortgage when quick finance is needed for short periods, which is why many people use them for buying property and home improvements.
How Can I Use A Bridge Loan For Home Improvement?
With a bridging loan, the vital thing to remember is that they are short-term, and most lenders will want them paid back within a year.
So, for things like home improvements, that usually doesn’t take a long time, bridging finance is perfect for having the money upfront to fund it and then paying it back once the work is complete. Some home improvements examples may be:
- Extension of the house
- Renovating a room/ floor of the house
- Changing the plumbing systems etc. to make it better
- Renovating the garden
Anything that will improve the house and add value to it is classed as a home improvement.
The reason why a bridging loan is available for this type of thing is that these improvements are usually short-term and also add value to the house, meaning an added value to your assets.
This is perfect for an exit strategy as you know the house will be of more value, so if you plan to move out or rent it, you can get more money from it and pay back the loan.
How Do I Apply For A Bridge Loan?
Applying for a bridging loan requires a few steps:
- Work out how much money you need to borrow and use an online bridging loan calculator to work out how much it will cost. This way, you know how much is required and if it is something you can handle.
- Before going to a lender, work what equity in assets you have as security and what your exit strategy is.
- Find a lender who you can get a bridging loan from. They will carry out an evaluation and assess what you need the money for, how much you plan to borrow, what security you have and an exit plan.
- Once approved, you will then receive the money and would have agreed with the lender, when it is due to be paid back and the final costs.
It’s a straightforward and easy process to get a bridging loan which can be done either online or in-person with a lender. The best thing to do is always have a look at different lenders, as some may offer you a better deal than others.