It is thought that the amount of money being lent out through bridging loans could increase by almost 50 percent within the next 12 months. Other areas of lending, in particular residential mortgages and business loans, have reduced considerably when compared to the levels of lending prior to the credit crunch. Years on and many people are still finding it hard to obtain a mortgage in order to buy a home and many businesses are struggling to find business loans, because of limited funds and therefore tighter lending criteria and higher borrowing costs.
Finance sectors that have seen a rapid growth are bridging loans and also asset loans. The large growth in these areas of borrowing has caused some alarm to the Financial Services Authority and also the Office of Fair Trading, because they are concerned about people taking out unsuitable borrowing facilities that they can’t afford. These areas of borrowing have seen a significant growth because lenders see good profit in providing these facilities.
The amount of money being lent out for bridging finance has now exceeded one billion pounds, as people are turning to bridging finance because they don’t have any other options for raising the finance that they require. There has also been a huge growth in the number of asset loans being taken out. These are similar to bridging but use assets such as jewellery, cars and other valuable items as security for the loan.
Bridging loans are traditionally quick to arrange because they have flexible lending criteria due to the fact that the lenders are only looking to provide the facility for a short period of time, and are therefore not so concerned about how payments are going to be made over the long term, but want to know how the loan is going to be completely repaid in the short term. Although many bridging loan providers can arrange their facilities reasonably quickly, there are some who can be considerably slow and take longer to arrange a bridging loan than most mortgage companies take to arrange a mortgage. These slow lenders want the penny and the bun, cashing in on the higher rates charged for short term facilities, whilst at the same time being super cautious with no sense of urgency.
The main concern, especially amongst the industry watchdogs, is that people are entering into bridging agreements because they are desperate to fix a short term financial problem and are not looking at the long term situation. By using a bridging loan as a quick fix, people are probably making their financial problems much worse in the medium and long term, especially when you factor in all the costs and interest charges associated with a bridging loan.
Short term borrowing has its uses, and can facilitate personal and business deals that can make the borrower significant profits or savings. However, used incorrectly short term loans can prove to be very expensive and great care and forward thinking should be exercised.
When looking for short term finance facilities bridging loans can often be a great option. However bridging loans are not always an overall good finance option, and on some occasions when they are a good option, there may actually be a more suitable finance facility available.
As independent commercial finance brokers we provide various finance options to businesses and investors. In addition to bridging finance we also provide commercial mortgages, asset refinancing, development finance, mezzanine finance, buy to let mortgages, asset loans and invoice finance. As bridging loan alternatives we often provide fast buy to let mortgages, asset refinancing, invoice finance and asset loans.
Bridging loans are usually taken out to solve short term cash flow problems or gaps in finances whilst property or other assets are being sold or a finance facility is being put in place. Since bridging loans are short term methods of finance they are usually arranged for periods of 6 to 12 months. Time can quickly catch us up and if there are problems or delays with the proposed bridging loan exit route this can cause financial worries and problems. Other facilities can also be put in place quickly and can offer longer finance terms, which can help remove pressure in addition to perhaps also being a cheaper alternative to a bridging loan. Asset loans provide another option to raising short term funds. Fast asset loans can also be secured on assets such as cars, jewellery, valuable watches, boats, aeroplanes, antiques and art.
When finance is required to fund new build properties, or extensions and refurbishments to existing property, bridging finance is often a popular funding option. Bridging loans often lend themselves very well to these types of projects, but they may be better funded through the use of development finance. This is because development finance is specifically tailored to fund construction projects. Like bridging loans, and quite often provided through bridging loan providers, development finance is a short term finance facility with terms of up to a maximum of 3 years. In most circumstances more money for a project can be raised through development finance because the facility is arranged taking into consideration the current value and also the end value of the property. This is unlike bridging loans that base their total lending facility on the current market value, although this can be adjusted later as work progresses and the value of the security increases.
The funding for building projects is not all required at the start, but is normally spread throughout the project. With development finance the funds can be released in stages, meaning that interest charges can be saved which makes the project more profitable.
Growing in popularity due to banks’ tougher lending criteria and lack of willingness to provide, or extend overdraft facilities, are asset based loans. When funds are required quickly to solve a short term cash flow problem, or to pay an unexpected demanding bill, traditionally our own bank would be our only port of call. There some sort of loan facility or an overdraft would be put in place to provide the necessary funds. Tighter lending criteria has made this course of action a more difficult option, with many short term finance requests that would have once been approved now being declined.
Unfortunately the unexpected bills and other circumstances that lead to urgent funds being required are still very much with us. With the banks being less accommodating demand has risen for other forms of finance. In particular asset loans, which are borrowing facilities based on the value of assets, have been quickly growing in popularity.
Asset loans can be arranged very quickly and are basically a modern form of pawn broking. Loans are made ranging from £1,000 up to £1 million based on the term required and the value of the asset that is being used to provide security. Types of assets that can be used to provide security include jewellery, valuable watches, cars, motorbikes, boats, vintage cars, valuable art and antiques.
The amount of money that can be borrowed on an asset loan is based on a percentage of the value of the asset. Interest is charged on the loan and added to the facility, which means there is no necessity to pay monthly payments. The asset loan is for a fixed period of time after which the loan needs to be repaid. Naturally the loan can be repaid before the end of the term, in which case interest will be refunded and the settlement amount recalculated.
Applying for an asset loan is very simple and funds can be arranged very quickly. The most important part of the process is the valuation of the proposed asset which the asset based lender will quickly arrange. Once the valuation has been completed a loan offer is made. Provided the offer is acceptable to the asset loan applicant, funds can be paid directly into their bank account.
The asset or asset being used as security will be safely held by the lender until the loan has been repaid. Insurance is also provided by the lender and all items are well looked after. This includes vintage vehicles and valuable pieces of art which are all stored in the correct conditions depending on the item.
In the event that an asset based loan is not repaid as per the terms of the agreement, the security can be sold in order to repay the debt. Naturally any proceeds remaining following the sale and repayment of the debt will be returned to the loan applicant.
Similar to bridging loans, pawn broking can also be used to quickly raise funds that are required for a short period of time.
The principle of pawn broking has been made use of by people for at least two thousand years, particularly back in Roman times. Methods used to pawn broke and facilities available to customers are still evolving today.
A typical bridging loan can be used to raise finance quickly without the need for in depth credit checks and income information and confirmation. The funds raised through a bridging loan is based on and secured on the equity of a property. Likewise pawn broking can raise finance without credit or income checks, the funds being borrowed are purely based on the value of the item or items that are being pawned.
Items that are used as security are known as the pawn, and are held by the pawn broker until the loan, together with any interest charges and fees, have been repaid. When borrowing money from a pawn broker there will be an agreed period of time in which the loan will need to be repaid. If this period is exceeded the pawn can be sold in order to repay the debt.
Being quick to arrange, useful for short term borrowing and being able to add interest and other charges to the loan facility is all very similar to more traditional bridging loans.
Today pawn broking has evolved from pawn broking items for £100 in a high street pawn brokers shop to asset based loans which can be arranged online and are available for amounts up to £1 million. Items such as prestigious, classic or vintage cars, valuable watches and jewellery, boats and works of art can all be used as security for an asset based bridging loan.
Any item used as security is safely and securely stored in addition to being well insured. Once the asset loan has been repaid the security item is safely returned. This type of borrowing is popular because it is very quick to arrange and can utilise the value of high value items that may have otherwise had to be reluctantly sold in order to raise urgently required funs.
KIS Bridging Loans have added a new and incredibly simple facility for raising quick funds for their clients. Asset based lending can be used for short term loan amounts ranging from £5,000 to £1 million pounds. The application process is incredibly simple as there are no credit checks so poor credit history does not cause a problem, and likewise there are no income checks. Funds are available very quickly, usually being transferred within 24 hours.
Asset based lending involves raising finance secured against assets, but instead of using property as security, like a traditional bridging loan, for this type of lending other assets can be used to provide security for the loan. Examples of acceptable assets that can be used to provide these different types of bridging loans are cars including prestigious or classic, boats including sailing, motor and luxury yachts, fine are, jewellery, gold, silver, diamonds, antiques and most other high value assets.
For customers looking for a quick asset based bridging loan all they have to do is decide how much they wish to borrow and what item or items they wish to provide as security. The item or items will then be valued and an offer for finance made which is based on the value of the security. Valuations are performed by experienced and well respected valuation professionals, so customers can rest assured that their items will be valued accurately.
If the customer then accepts the terms of this bridging loan the funds will be transferred directly into their bank account. The assets being used as security will be kept by the lender until the bridging loan has been repaid. Interest is charged monthly and there is usually an arrangement fee that is all added to the loan facility. For this type if bridging loan there are no redemption or exit fees.
All items that are provided as security are well insured and looked after at very secure storage facilities. Items such as fine art and vintage cars are stored in air conditioned premises and looked after correctly, even to the point that if a car needs to have a service or its engine run every so often, this will all be taken care of.
Once bridging loans have been repaid all security items are returned.
Providing bridging loans through asset based lending is incredibly simple and also very quick.