Why Use Short-Term Finance or Bridging Loans?
Short-term finance, more commonly known as a bridging loan, was originally designed to help homeowners “bridge the gap” between buying a new property and selling their existing one. It provided a quick funding solution when timing didn’t line up – for example, when a buyer needed to complete before their own sale went through.
Over time, however, bridging finance has evolved far beyond its original purpose. Today, it’s a versatile financial tool used by homeowners, landlords, property developers, and business owners alike.
When Can Bridging Finance Help?
1. Buying at auction
Property auctions often require buyers to complete within 28 days – a tight deadline for traditional mortgages. A bridging loan can provide the necessary funds quickly, ensuring buyers don’t miss out on opportunities.
2. Refurbishment and property improvement
Many borrowers use bridging loans to carry out refurbishment or light development works, helping increase a property’s value before refinancing onto a longer-term mortgage.
3. Development and conversion projects
With permitted development rights continuing to encourage the conversion of commercial properties into residential units, bridging finance often acts as the first step in a project’s funding journey. Once works are underway, borrowers can transition to a development or buy-to-let mortgage.
4. Business and cash flow needs
Short-term loans aren’t limited to property transactions. They can also help businesses fund equipment purchases, boost stock levels for seasonal demand, or even cover VAT or tax obligations – subject to lender criteria and regulatory controls.
Real-World Examples
Home mover bridging the gap
A couple own a property worth £300,000 with a £150,000 mortgage. They find their dream home for £500,000, but the seller wants a rapid exchange within three weeks. A bridging loan allows them to complete the purchase quickly and repay the short-term loan once their existing home sells.
Commercial investment
An investor wishes to acquire new units on a business park but needs to complete within a few weeks to secure a discount. Their bank can’t meet the timescale, so they use a bridging loan secured against their existing assets. Once long-term funding is arranged, the bridging loan is repaid.
Why Choose Bridging Finance?
Bridging loans are valued for their speed, flexibility, and accessibility. While they typically run for up to 12 months, they can often be repaid earlier without penalty. Borrowers can choose to roll up interest payments until the end of the loan term, helping manage short-term cash flow.
However, as with any form of borrowing, professional advice is essential. Bridging loans are complex and may be regulated or unregulated depending on the borrower and purpose. Speaking with an experienced adviser ensures the finance solution fits your needs and complies with Financial Conduct Authority (FCA) rules where applicable.
The Bottom Line
Short-term finance can open doors to opportunities that might otherwise be missed – from property purchases and renovations to commercial growth. Its popularity continues to grow, driven by the need for speed and flexibility in a changing property market.
At Impact Specialist Finance, we help clients find the most suitable bridging solutions for their needs, whether regulated or unregulated. Our experienced advisers understand the market, the lenders, and the nuances of each deal, helping ensure the best possible outcome.