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What Is Bridging Finance?

Bridging finance is ultimately a short-term loan aimed specifically at developers and property buyers. Bridging loans have become a common solution for those property investors and developers that need to buy a property quickly (perhaps at auction) in order to assist with some form of refurbishment.

This type of loan is particularly effective at enabling the refurbishment of the property so the customer can either hold it as an investment with a longer term lender or sale the property at a profit.

There are many different bridging loans available. This includes (but is not limited to):

    • First Charge & Second Charge Bridging Loans
    • Non-Regulated & Regulated Bridging Loans
    • Commercial Bridging Loans
    • Refurbishment Bridging Loans


What are first and second charge bridging loans?

A first charge-bridging loan is the main loan that has been taken out against the property. In comparison, a second-charge bridging loan is the subsequent loan on a property that already has a loan against it. For example, if you already have a mortgage, then the bridging loan would be a second charge loan.

There is no limit how many charges can be listed on a property however you may have to get in contact with your original lender when wanting to apply for additional loans and there will come a point when you will run out of equity in the property.


What are non-regulated bridging loans?

A bridging loan is unregulated if it is secured against a property that a borrower (or any member of their immediate family) will never reside in, thus being used as security for business or investment purposes. Another way a loan becomes unregulated is when it is taken out under the name of a company instead of a person.

Non-regulated bridging loans can be used for adding value to a property through refurbishment, purchasing a property quickly (for example via an auction), or repaying development finance. In terms of effectiveness, they are reliable and a quick and easy source of money.

During the loan’s term, the interest is often rolled into the loan and repaid at the end of the loan date or sooner (if it is to be repaid early).

In comparison, a regulated loan is regulated by the Financial Conduct Authority and is used on properties that you are currently living in or are going to live in.


What is commercial bridging finance?

Commercial bridging finance refers to loans secured against commercial property and is often used to secure funds quickly to purchase or release funds from a commercial property. They are usually arranged for up to 18 months although some lenders can offer extended terms.

During the loan’s term, the interest is often rolled into the loan and repaid at the end of the loan date or sooner (if it is to be repaid early).


What is a refurbishment-bridging loan?

Refurbishment bridging loans are specifically for those looking to renovate properties. There are two types of refurbishments bridging loans available:

    • Light refurbishment bridging loans
    • Heavy refurbishment bridging loans

The term ‘light’ differs depending on the lender but is suitable for properties that require only slight changes or upgrades. They are usually applied to projects where no planning permission is needed, for example rewiring a property, installing a new bathroom or everyday decorating.

For the bigger and more challenging alterations, you would need a ‘heavy’ refurbishment-bridging loan. This is often where the structure of the house will be modified and planning permission is needed, for example extensions and internal/external structural work.


What is meant by a bridging exit date?

Most bridging loans have a fixed end date, which is usually based on when you will have agreed in advance with the funder to pay it back.

The lender will usually determine the term of the bridging loan based on the project needs of the customer. The goal is to exit the loan prior to the date on which the loan expires, giving the customer flexibility to pay it back. The focus is to not allow the facility to over run, and the terms can be renegotiated if really necessary.


Case study

We were recently approached via Finance 4 Business by a developer who had agreed to purchase a part-completed development for £7.5m.

After a delay in their original development funding, they contacted our expert team and within 24 hours we had reviewed the case and set up a video call between all relevant parties. A £4.25m gross loan was agreed with a 9-month term to ensure our client felt reassured they would have the time and finances to continue their project.

Find out more about how we provided a £4.25m loan for the part-completed development.


How can we help?

Whatever your financial needs, our team will work alongside you to deliver the best results for your individual situation. We can offer loan sizes from £50,000 to £5,000,000 and our loan terms range from 6 to 18 months on a rolling or retained loan period.

Find out how we can help you by calling 0330 202 0109.

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