A bridging loan turned out to be the solution to securing the quick purchase of a large hotel. Time was against our client as the hotel needed to be purchased very quickly to secure the fantastic sale price that had been agreed. A bridging loan was the best option due to the short timescale in which the funds were required, and there were additional problems because the hotel was in a poor state of repair and had been closed for a number of years, meaning that there were no recent trading accounts.
To secure a quick purchase a bridging loan was raised and the sale completed without any problems. The bridging loan was later increased to provide funds for conversion work to be undertaken so that the former hotel could be turned into apartments.
Once the apartments were finished some were sold and 2 were refinanced using buy to let mortgage facilities in order to repay the bridging loan. Two apartments remain finance free and are being rented out, although there is a possibility that they could be used to secure another bridging loan shortly to fund another project.
Bridging finance is only a short term method of borrowing, therefore when taking out a bridging loan an exit strategy needs to be in place.
Common exit strategies often involve repaying the bridging loan once the property has been sold, or raising a long term finance facility to repay the bridging loan.
KIS Bridging Loans is a trading style of KIS Finance, who are independent commercial finance brokers who in addition to being specialist providers of bridging loans they are also specialise in providing commercial mortgages, development finance and buy to let mortgages. They are therefore able to arrange the best possible deals for bridging finance, and also able to help provide a range of finance options when refinancing is to be the exit strategy.
A recent example was for a client who had obtained planning permission for an old derelict barn that he owned to be converted into two residential properties. A bridging loan was raised, secured on the derelict barn, to fund all the building work that was required to complete the conversion of the two properties. Following completion of the conversion the bridging loan was repaid by raising a buy to let mortgage on one of the properties. The client quickly rented both the properties and all raised another buy to let mortgage to provide the funding for another development project.
Bridging loans can be arranged in as little as 24 hours, but they normally take 5 to 14 days in order to obtain the best possible bridging finance deal.
Bridging finance is ideal for short term use and many loans can be set up so that there are no any early repayment charges or penalties.
In order to raise the amount of finance required a single bridging loan can be secured on more than one property.
Since more than one property can be used as security it is possible to raise 100 per cent of the purchase price by using the additional property to make up the equity gap.
Bridging loans are very flexible and each facility can be tailored to best suit your own requirements and what is best for you.
When setting up a bridging loan there are often various options regarding monthly interest charges and repayments. Interest payments can be made monthly, but other options including interest roll up are often available for bridging finance facilities.
Some bridging finance providers have a flexible approach to a poor credit history such as County Court Judgements, repayment arrears and defaults. Bridging loans can therefore sometimes be the only finance option.
Finally, bridging loans enable a way of raising finance where other types of funding maybe unobtainable. Properties in a poor state of repair and in need of renovation can be used as security for a bridging loan. This is of a particular advantage because for these types of property more traditional mortgage and commercial mortgage providers often place difficult conditions and retentions on their facilities, or quite often may just refuse to lend. Consequently for some types of property, including property of unusual construction, a bridging loan maybe the only finance option.
Bridging loans are often used in order to buy property at auctions. Buying property at auction is very popular and many people looking to start a property portfolio or expand their existing portfolio buy property this way.
Having made a successful bid at a property auction, in most circumstances a 10% deposit is required immediately and the remaining 90% of the funds need to be paid over within 28 days. Because bridging loans can be arranged quickly it is a popular method of raising money in order to complete the purchase of property that is bought at auction.
Having raised a bridging facility and completed the purchase of the property, the bridging loan will need to be repaid usually within no more than 6 to 12 months. In order to repair the bridging loan the new owner will look to raise a buy to let mortgage, a commercial mortgage facility or sell the property for a quick profit. Quite often the property may require some modernising or renovating before it is sold or re-mortgaged, which is another reason why bridging loans are so popular.
It is important to remember that bridging facilities should only be used as a short term funding solution and before proceeding with a bridging loan you should have a means, or at least a very solid plan, about how you intend to repay any bridging loans.