Bridging loans were a specialised type of mortgage finance that appeared in the 1960s. Initially, they were mainly provided by high street banks and building societies, but some accountants and solicitors also provided bridging finance.
Now, there are many specialist bridging finance lenders. Though the majority of bridging loans are for property, many businesses have used bridging loans for a variety of reasons.
Most bridging loans are for property purchases. A typical use is when a person is buying a house but has not completed the sale of their existing house. Many house purchases are caught in what is known as a ‘chain’, whereby a seller is waiting for someone to complete the sale of their house, but their buyer may also be in the same position, waiting on the sale of their house. This so-called chain can involve several house purchases. Bridging loans are the answer to delays caused by these chains.
Buying at auction
Normally, when buying a property at auction, a successful bidder will be required to place a 10% deposit to secure the purchase. A bridging loan can be used for this purpose until more long-term finance is available. Buy to let landlords often use bridging loans for their auction purchases.
Commercial bridging loans
Commercial bridging finance has a number of uses. Bridging loans can be used for the purchase of property when a business needs to locate.
Bridging finance is also available for short-term cash flow issues. This is often used by businesses that experience seasonal fluctuations in trade. The majority of income for a retailer could be the Christmas period, with slow sales in the summer. An ice cream seller, on the other hand, may sell mainly in the summer months. During a slow sales period, staff need to be paid and other business expenses met. A bridging loan can be the solution to cover short-term cash flow such as this.
Bridging loans can also be used to purchase stock and fund equipment purchases.
Commercial bridging finance is available for all types of organisations, including sole traders, partnerships, limited companies and trusts.
One advantage of bridging finance is that loans can be arranged quickly. A lending decision can often be made in a matter of hours.
Bridging loan lenders will require an exit strategy, which is a plan for when and how the loan will be repaid. Loans will usually be short-term for up to one year.
Where can I find mortgage finance, how much does it cost and how much can be borrowed?
Bridging loans can be arranged for anything from £10,000 to £10m or more.
A bridging loan usually charges more interest than a conventional mortgage, but costs vary depending on circumstances.
Talk to Ascot Mortgages today to discuss your bridging finance requirements. We’ll find you the best deals at the most competitive rates.