Bridging finance (also known as Short Term Lending) is a solution that can be used to provide fast access to funding for a number of different circumstances.
Often, bridging finance can be much quicker to arrange than a normal mortgage. However, bridging finance should not be considered a replacement for more traditional mortgage lending which is normally more cost-efficient. It can be a complicated process and each case is written on a bespoke basis according to the requirements of each individual transaction.
Initially, this type of finance was used as a way to mend a broken link in a housing chain and typically used to ‘bridge’ the gap between a house sale and completion.
However, bridging is often also used for people buying at auction, to meet strict deadlines (usually of 28 days), for people wanting to carry out refurbishments to boost the value of their homes or where the property would not meet the requirements of a traditional mortgage lender as well as for numerous business purposes. Some lenders will also help with short term VAT requirements subject to strict controls.
In more recent years, the market has seen a broader number of uses for short-term loans as their popularity has increased. For example, many commercial premises are now being converted into residential houses or flats, because of the expansion of permitted development rights, and bridging loans can be used in the initial stages of the conversion with longer-term funding provided once the building project has started. Short-term finance can be used to buy new equipment, to build up stocks ahead of an expected rush on seasonal orders, or for buying shares in another business. It’s becoming increasingly popular, mainly because of its speed and flexibility.
The best way to look at this is as a means to an end. Lenders will need certainty on the exit route (how will they get their money back?) and they will always insist on an agreement being in place from a traditional mortgage lender to provide a mortgage, at a given time and once any requirements have been fulfilled. Alternatively, the exit route might be from the sale of the same or another property. So, short term lending is designed to fulfil the need or desire to act quickly.
Finally, this type of funding has become more competitive over the years with some now offering rates as low as 0.43% per month for the right customer. Obviously, individual terms and conditions apply and with these types of offerings always seek professional advice!