Bridging Finance
Bridging finance is a loan, generally for a short period of time to bridge a gap. A good example of when you may need to use bridging finance is when you are buying a new property and waiting for a traditional mortgage to be approved or capital to be released from the sale of their current home and have a short period of time to be “bridged”.
Although bridging finance loans are most commonly used to help fund a new house purchase while you’re waiting for your existing property to sell they can be used for a variety reasons such as major structural home improvements, renovation projects and lease extensions.
When getting a bridging loan, you need to show that you have a viable exit strategy. The usual exit strategy for landlords, for example, is to refinance the loan onto a buy-to-let mortgage.
What are the occasions when a Bridging Loan might be used?
To buy at auction where you have a short timeframe to exchange contracts.
Business cashflow problems
Inheritance tax
Renovation purposes
Repossession prevention
Is Bridging Finance expensive?
Bridging finance is a quick way to raise money because there are less questions asked by the lender than there are in your more conventional mortgage process, meaning it’s also used sometimes used to purchase property when there is a requirement for speed. But it is important to note, you will need a plan for exiting the loan, as it is seen as short-term funding only and usually up to 18 months only. The exit can be anything from the sale of the property or asset to raising finance from another source, such as getting a commercial or residential mortgage, against it.