What Are Bridging Loans?

What Are Bridging Loans?

Sometimes in business or real estate an excellent opportunity presents itself, maybe that once-in-a-lifetime chance that could transform your fortunes. If a business owner or indeed any individual finds themselves in this situation but are unable to fund the investment, then a bridging loan may be the perfect solution.
A bridging loan is perfect for business owners that need to borrow money for a short period of time, in other words, to bridge the gap, which is where the name comes from.

Are There Different Types of Bridging Loans?

There are essentially two different types of bridging loans, closed and open. A closed bridging loan has a fixed term repayment date; in other words, when a business takes out a fixed term bridging loan, they agree to repay that loan by a specific date.

With an open bridging loan, although there is no fixed repayment date contained in the agreement, the expectation is that the loan would typically be repaid within one calendar year from the date of the agreement. Bridging loans typically fall into the category of secured loans, so in order to qualify for one, a business or individual will need a high-value asset to use as security, such as a piece of property or land.

Bridging loans are very popular for business owners who purchase properties at an auction. This is because buying a property at auctions requires a significant cash flow, which not all investors may have. With a bridging loan, the property investor can buy the property at auction, modernise and improve it before selling it at a significant profit. Once the profit has been realised, the borrower can repay the bridging loan.

Things To Consider When Choosing A Bridging Loan

How Much Money Does The Business Need To Borrow?

When it comes to borrowing money, the first thing that needs to be decided is how much money the business needs to borrow. The majority of lenders will offer a bridging finance solution for a loan of between £5,000 and £10 million.

What Is The Value of Any Asset The Business Wants To Utilise?

How much is the asset the borrower plans to use worth? This is important for two main reasons: your asset’s value is directly linked to the amount of money that can be borrowed and will also dictate the bridging loan rates that you will qualify for. The higher the perceived risk to the lender, the higher the rate your business will have to pay.

How Long Does The Business Need To Borrow The Money For?

Bridging loans are intended to be short-term finance options but can cover a time span of between one month and two years. A business owner must understand the length of time the loan agreement is for to ensure they are choosing the best finance option for their specific requirements.

Is There Already A Mortgage or Other Finance Secured on The Intended Asset?

This is a critical factor in helping the lender decide how much money they are prepared to offer your business.

Although a bridging loan can seem daunting and scary, it is the perfect option for certain business situations or scenarios. If you feel that your business could benefit from a business loan, please arrange a no-obligation consultation with the friendly team at AW Capital.

One of the qualified financial advisors will be more than happy to discuss the various options and provide you with the correct advice to help you make an informed decision.

For more information about the products available, or to book your free consultation, call the customer service team on 0333 772 6165.

What are bridging loans