A bridging loan is a very versatile method of finance, which can normally be arranged and completed far more rapidly than other property based loans. Offers in principle can often be obtained within hours and the loan put in place within days. Key features of bridging loans are:
- The loan is always secured against land or property (commercial or residential). Normally a first charge is required, but some lenders will accept a second charge if there is sufficient equity in the property.
- The loan is short term, typically up to twelve months.
- Interest is charged monthly, and together with the fees involved can normally be rolled up.
- Maximum loan to value will be up to 75%.
- A bridge may be open (which means no exit route from the loan is agreed) or closed (which means the repayment method for the loan has already been identified).
- NFS can assist in refinancing bridging loans onto long term financing, for example a commercial mortgage.
The arrangement process is very straightforward.
Bridging loans can be used for many different purposes. Examples might be:
- Property purchases at auction - finance required within 30 days to complete the transaction.
- Purchase of land below market value - receive finance based on full value.
- Unexpected business expenses - buy time to arrange longer term finance.
- Tax Liabilities – when a tax demand is made it is often for an amount that a company cannot access immediately, or within the required time period. This is a perfect opportunity for a bridging loan, normally secured on company or other property with funds rapidly available.
- Corporate Recovery – through offering products such as payment holidays or staged capital repayments a bridging loan can ease difficult financial situations thus reducing pressure on the company and allowing the focus to be on recovery.
- Inheritance tax payment – as inheritance tax must be paid prior to probate this can lead to the property having to be sold a a disadvantageous time. Bridging finance can be used to pay the tax bill, thus allowing the property to be sold at a more advantageous time.
- MBO/MBI – bridging finance is ideal in such situations due to the frequently short time frames to complete the transaction. Bridging finance can be put in place rapidly covering the interim period prior to more traditional methods of finance being put in place.
Bridging finance should be arranged as far as possible in advance of use to ensure the funds are available exactly when needed.