KIS Bridging Loans
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Frequently Asked Questions and Glossary

 

Bridging Loan FAQs


How much can I borrow?

We have extensive bridging finance facilities that can provide bridging loans from £25,000 to £5 million. We have further specialist facilities that specialise in providing commercial bridging finance for £5 million to £100 million.

What can I use a bridging loan for?

We can provide bridging loans for any legal purpose.

How long does it take for me to get my bridging loan?

It is possible to have your bridging loan within 48 hours! Just tell us when your bridging facility is required and we will work to that date. We are very fast and efficient, so if you need your bridging loan this week please give us a call.

Why is KIS Bridging Loans so quick at arranging bridging facilities?

This is due to many years of experience, access to a wide range of bridging loan facilities, very efficient processing systems and a hard working, well organised team.

What type of security can my bridging loan be secured against?

Our bridging loans can be secured on residential property, commercial property, building plots and land. Don't worry about the type of construction or the condition of the property, we are very flexible.

Can you arrange bridging loans for people with County Court Judgements, defaults and arrears?

We have a wide range of facilities and can provide bridging finance for clients who have County Court Judgements, defaults, arrears and also discharged bankruptcies.

Can you arrange bridging loans for limited companies and partnerships?

Yes we can, commercial bridging loans are a speciality, provided that there is sufficient security and the ability to repay the commercial bridging loan.

Can I use property that already has a mortgage secured on it as security for my bridging loan?

The bridging loan facilities can be secured as first or second charges, and in some circumstances even third charges, provided that there is still sufficient equity in the property.

Are there any upfront fees to pay?

We do not charge any upfront or finder's fees for bridging loans. In the absence of a suitable valuation report, the only costs that may be required up front are valuation fees.

What costs are involved in having a bridging loan?

For bridging loans there is usually an arrangement fee which is only payable once you have your bridging finance facility. Therefore if you do not receive your bridging loan there are no arrangement fees to pay. We do not charge upfront application fees, however in the absence of a suitable valuation report a valuation fee maybe required. If a suitable valuation report is already available a valuation fee won't be required. Arrangement fees and also legal costs can usually be added to the bridging loan facility if required.

Once I have my bridging loan, if I require more funds will I be able to borrow more?

This will be possible provided that the existing bridging loan facility is not in default and there is sufficient equity available to secure the additional borrowing.

Once I have my bridging loan, can I make capital reductions?

Yes you can, this will reduce your outstanding bridging finance balance and also reduce your monthly interest charges.

Are my details and information about my application kept confidential?

Yes of course. We do not sell or pass any information to other companies for marketing purposes.

What is a closed bridging loan?

A closed bridging loan is one that is taken out when there is a guaranteed exit date, or date when the loan will be repaid. An example of a guaranteed exit date would be the date of completion for a property sale having exchanged contracts. When taking out a bridging loan under these circumstances a guaranteed exit date can be provided. This type of bridging loan is obviously less risky to both the lender and the borrower and this is reflected in the lending rates and charges.

What is an open bridging loan?

An open bridging loan does not have a guaranteed exit date and therefore a borrower can only indicate to the lender or guess how long the loan will be required. An example of an open bridging loan would be when funds are to be cleared following the sale of a property, but at the time of taking out the loan there are no confirmed buyers. Open bridging loans are a more risky proposition for both the lender, who does not know when to expect repayment of the loan, and also the borrower who does not know how long or how many monthly interest payments he will have to pay.

What is mezzanine funding?

Mezzanine funding is a method of raising finance for development projects. This type of finance facility is used by property developers to help fund a building project. Typically most of the funds will be provided by a main lender and the rest will be from the mezzanine lender and the developer. The mezzanine lender will take a second charge for security, after the main lender's first charge.

What is the difference between a bridging loan and development finance?

There are a number of similarities with bridging loans when compared to development finance. Both methods of finance are only intended as short term funding options and both can be used to finance building new properties or renovating and restoring run down and dilapidated ones.

Once the project has been finished a bridging loan or development finance facility will need to be repaid. This would be achieved by refinancing the completed property with a long term finance option such as a commercial mortgage, or the property is sold.

Development finance can be taken out for periods of up to 3 years, whereas bridging loans are usually up to a maximum of 1 year. For new build and restoration projects property development finance is often the better option because it can be cheaper due to better rates and the proceeds of the loan can be released as it is required as work progresses, allowing further savings on interest charges.

The development finance providers place a great importance on previous development experience, so if this is not available then a bridging loan maybe the only option.

 

Commercial Finance FAQs


What is asset refinancing?

Asset refinancing is a method of finance used by businesses to release some of the equity contained within an asset such as a piece of machinery, a vehicle, or some other equipment. Asset refinance is usually arranged on assets that are owned outright, although refinancing can be achieved when there is already a finance facility secured on the asset, provided that the existing facility is repaid from the money raised by the new facility. Assets that can be used to secure finance against need to be identifiable, meaning they need to have a serial number or other registration mark.

What is a buy to let mortgage?

A buy to let mortgage is a mortgage facility secured on a property that is rented out. Buy to let mortgages are a very popular method to finance the purchase and refinancing of investment property. Most of the buy to let mortgage providers make their affordability calculations based on the rental income potential of the property. Residential properties such as houses and flats are most commonly used to secure buy to let mortgage facilities.

What is a let to buy mortgage?

A let to buy mortgage is simply a specific term used to describe a buy to let mortgage facility that is being used to finance the mortgage holder's existing home. This would be in order to allow them to move out of the property and rent it to a tenant. Let to buy mortgages are popular methods of finance amongst people who want to move home, whilst at the same time retaining their previous home for investment purposes. Recently, let to buy mortgages have been popular due to the depressed property market, where let to buy mortgages are being used to help facilitate the purchase of a new property whilst at the same time enabling the former property to be retained. This would be with the anticipation that the property market will improve in the coming years meaning a better sale price can possibly be achieved.

LIBOR interest rates explained

LIBOR is an abbreviation of the London Interbank Offered Rate, which is an interest rate measurement. The interest rate measured by LIBOR is the average amount of interest charged by the banks when they lend out their surplus money to each other. LIBOR interest rates are provided in 10 different currencies and for 15 different periods ranging from overnight to 12 months.

The LIBOR rate of interest is determined on a daily basis in London by the British Bankers Association, often referred to as the BBA. In order to determine the LIBOR rate of interest the BBA consult a group of large banks on the London money market, from which they take an average of the interest rate that they are each prepared to lend out their surplus money for. The LIBOR interest rate is announced each day at around 11.45am (UTC).

This is all a very important part of banking because the ability of banks to be able to lend to and borrow from each other enables them to be more functional. For example the banks that need money are able to borrow from the banks who have a surplus, clearly a help to the banks who require funds and also helpful to the banks who have a surplus because they can now earn some interest on that surplus.

Many lenders use LIBOR as their base rate when providing mortgages and other facilities to their customers. It is common to see rates set as a fixed percentage above the Bank of England Base Rate or the 3 month LIBOR rate. LIBOR is therefore watched very closely by both professionals and individuals because LIBOR interest rate rises and falls have a significant effect on a huge range of financial facilities including savings and mortgages.

Recently the 3 month LIBOR rate has been significantly higher which is in part due to the volatile market that has had the effect of making the banks to be less willing to lend to each other, and also because the demand for money is high. The high demand for money will naturally cause the cost (interest rate) to rise. More recently the 3 month LIBOR rate has started to fall which is good news for borrowers.

 

Secured Loan FAQs


What is a secured loan?

The term secured loan is usually used to describe a personal loan facility that is secured by way of a legal charge over the loan customer's home. Secured loans are sometimes referred to as a second mortgage. Most secured loans are secured via a second charge after the existing first charge mortgage that is already in place. Due to the extra security provided to a secured loan provider, the loan facilities provided can be considerably larger than with a normal personal loan, with personal secured loan amounts of up to £100,000 being available through some of the main lenders. Also, the extra security means that the lenders are less at risk of bad debt, and this benefit is also enjoyed by customers by way of lower interest rates. Secured loans are usually used for home improvements and debt consolidation.

What is a consolidation loan?

A consolidation loan is a term used to describe a loan facility that is used to clear other smaller finance agreements. Consolidation loans are usually used to clear up other finance agreements such as credit and store cards, overdrafts, hire purchase payments and small loan agreements, replacing them with one more convenient loan facility that offers a better rate of interest and a lower monthly repayment. The main use of consolidation loans is to replace several monthly payments with just one, make managing finances a little easier whilst also reducing monthly outgoings. Quite often the term of the consolidation loan maybe longer than terms remaining on agreements being consolidated, this may result in more loan interest charges over time.

How quickly can I get a decision on an application for a secured loan?

Normally we provide an in principal decision on secured loan applications with 20 minutes of making an application. In addition to a decision we will also provide information and options with regards the amount you are borrowing, the repayment options available, interest rates and any other costs.

How long does it normally take to get a secured loan?

From the initial application to completion a secured loans normally take around 2 to 3 weeks. By law there is an 8 day consideration period, also known as a cooling off period, which has to be observed. The consideration period means that following your decision in principal you receive copies of your loan documents, then 8 days later you receive your original documents which you sign if you still wish to proceed. We are fully aware that most applicants require their loan quickly, and we work hard to ensure that each application is processed and completed as fast and as efficiently as possible.

 

General Finance FAQs


What is the 6 month rule?

The 6 month rule is a lending condition that a large proportion of lenders implement. The rule was created to help prevent back to backing, a practise that led to many lenders losing money. The condition of the 6 month rule is that a property has to be owned by the current owner for at least 6 months before it can be remortgaged. Some lenders have even extended this period to 12 months! There are however a limited number of lenders who do not operate this lending condition or will waive the restriction under certain circumstances.

This condition can sometimes cause problems when buying and selling property, because any finance being raised by a purchaser can be subject to the 6 month rule if the property being sold has not been owned by the vendor for 6 months or more.

What is meant by an arm's length transaction?

This terms applies to a transaction where both parties are acting independently of each other. This means that neither party is subject to influence by the other and is clearly acting in their own best interest. Example A good example of where an arm's length transaction can be seen is within the property market. Where no prior relationship exists between the buyer and the seller this is regarded as an arm's length transaction, as both parties will be acting in their own best interests. Whilst the seller aims to achieve the best price for the property, the buyer will endeavour to achieve the lowest price. Through this mechanism a fair, market value is likely to be achieved. However, where both parties have a vested interest, such as where a sale takes place between family members, the transaction is not regarded as being at arm's length. In this case the price agreed may not be a true reflection of the market value, which may have both tax and legal implications for both parties.

In such circumstances, the use of a disinterested third party, such as a broker, may be advisable to avoid any such legal or taxation related challenges at a later date.

 

Glossary of Financial Terms


Assets

An asset is any property, piece of equipment, machinery, vehicle, stock, materials, furniture, trademark, brand name, etc that is owned by a company or business and has a monetary value.

Asset Turnover

The asset turnover is a term used to illustrate the measure of operational efficiency which is the amount of revenue generated when compared to the cost of the assets.

Bridging loan

A bridging loan is a short term loan facility that is secured on property and can be used to provide large sums of money. Bridging loans can be put in place quickly and used to provide finance when funds are only required for the short term, ie from just 1 day to 18 months. This type of loan should however only be used to provide short term finance. As a short term finance facility bridging loans can often be the cheapest option for borrowing money, but if used as a long term facility they can prove to be a very expensive option.

Bridging loan calculator

A bridging loan calculator works out the monthly interest charges for a bridging loan amount. The KIS bridging loan calculator also has a facility to add in fees because most lenders include these as a percentage of the bridging loan amount. We just like to keep things as simple as possible!

Commercial bridging loan

Commercial bridging loans are used by businesses that require a short term lending facility. These facilities are classed as unregulated so do not offer consumers the protection that a regulated agreement does. If a bridging loan uses a borrower’s home as security, then it has to be regulated. If the loan is secured against a property not used as the borrower’s residence, then it will be unregulated. There are many more bridging loan providers offering unregulated loans than there are lenders who offer regulated, and regulated lenders will usually provide both types. It is very important to read and understand the terms and conditions on all agreements, and these will vary from one lender to the next. Businesses will use bridging loans to provide cash injections to pay urgent bills, fund orders, buy property, expand or improve business premises or to bridge a gap whilst waiting for bills to be paid or proceeds from another finance facility to arrive.

Current assets

Current assets takes account of any equipment, vehicles, machinery, property, trademark, stock, etc that can be turned into money within a 12 month period. To total current asset figure would be the total worth of all assets owned by the company that could be sold within a year.

Development Finance

Development finance is similar to bridging in that it is short term, usually for periods of between 12 and 36 months. It is a specialist facility used to fund development projects, and is useful because funds are released in stages as the project progresses. Development finance makes use of the developing security, for example as the project progresses it becomes more valuable, even though it is not finished. Money is released to the borrower to fund the development as the stages are completed.

Goodwill

Goodwill is the term given to any money that is paid in order to purchase a company that is in excess of the value of the net tangible assets.

Mezzanine finance

Mezzanine finance is a form of funding used mainly by property developers. This type of funding is usually used in addition to funds provided by the main lender, and is normally taken out to fund a gap in finances. For example if a development project requires a total of £1 million and the developer has £200k to put in, then can only raise £600k through his principal development finance provider, the £200k shortfall maybe provided through the use of mezzanine finance.

Secured loan

A secured loan is a finance facility where the lender takes a charge over property. The added security means reduced risk for lenders, which tends to mean increased loan amounts, reduced interest rates, longer loan terms and more flexible lending criteria. Failure to keep up repayments will most probably lead to litigation and this could result in the property being used as security being repossessed.

NHBC – National House Building Council

The UK's largest provider of new home warranties. Their aim is to improve building standards of new build properties so homebuyers can be confident that a home with NHBC buildmark cover will have been built by builders who are registered with the NHBC and adhere to their standards.

NHBC Certificate

This is a document to show that the new property is covered for the first 10 years against any damage or fault to the building which you would not expect to happen had the building been built in line with the standards set by the NHBC. Full cover details and any limitations and exclusions will be given in the policy document.

Credit search

A check made by lenders using one of the credit reference agencies as part of their decision making process prior to accepting or declining an application for credit. The lender may do this to check your credit score or view your credit report. A report will show details of existing credit that you already have and whether or not the payments have been kept up to date. It will also show any adverse credit history including County Court Judgements (CCJs), defaults, voluntary arrangements and bankruptcy orders. This information is kept for at least 6 years.

Soft Search

A soft credit search can be done to enable a lender to give a quotation. This type of search does not leave a footprint on your credit file and cannot be seen by other lenders. If you make several applications for credit to try and find the best deal, several credit searches will be done which can reduce your chances of getting credit as it may look like you are trying to get too much credit or it could look like a fraudster is using your details. If you are shopping around, it is best to ask lenders for a quotation only rather than making more than one application.

Adverse/impaired credit

Any existing or previous credit commitment within the last 6 years which has not been repaid as per the agreement is considered adverse or impaired credit and will have a negative impact on your credit score. Adverse credit history will indicate to a lender that you may not be reliable in repaying the borrowing.

Arrears

If a contractual payment is not made by the due date, the account is then 'in arrears'. The arrears figure is the amount of money which is overdue. Most credit commitments are repaid on a monthly basis and lenders report to the credit reference agencies monthly, so if a payment is missed one month then this will have an adverse affect on your credit report.

APR - Annual Percentage Rate

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All lenders are required to disclose the APR to show the total cost of borrowing for a year. It is the interest rate but also includes any additional costs, such as fees. This is to make it easier for consumers to compare different finance products as looking at the interest rates alone does not always give a fair comparison.

Bankruptcy

If you are unable to repay your debts, you can be declared bankrupt by the courts. The proceedings can be initiated by yourself, by your creditors or by an insolvency practitioner. Going bankrupt has serious financial consequences, for usually a year a court official known as an official receiver will take control of your money and any assets you may have may be sold to repay the debts. Usually any debt remaining at the end of the year is written off, but the bankruptcy will still show on your credit file for 6 years.

Certificate of Good Standing (Certificate of existence)

A certificate issued by Companies House to confirm that a company exists and is not currently being taken off the companies register. The document will only be issued if the company's annual return and accounts are all up to date.

County Court Judgement (CCJ)

A CCJ is issued by a county court for failure to repay a debt. The court will contact you before issuing the CCJ and give you 14 days to respond. CCJs stay on your credit file for 6 years and have an adverse affect on your credit rating.

Credit Rating

Each lender will have their own way of determining your credit rating after conducting a credit search based on their lending criteria. Your credit rating helps to make their decision regarding whether or not to lend to you, based on your previous repayment history, how you manage your current credit, whether you have any CCJs or have been bankrupt. Other factors can have a bearing on your credit rating such as if you are on the voters roll.

Credit Reference Agency

There are three credit reference agencies who provide lenders with the facility to conduct credit searches – Experian, Equifax and CallCredit. Lenders report back each month to a credit reference agency so that your credit history is kept up to date.

Debt Consolidation

Debt consolidation is a term used when a loan application is made with the intention of using the funds to repay other debts. The purpose of this could be to secure a lower interest rate or if the borrower is struggling to keep up with their current commitments, they may want to spread repaying the borrowing over more time to make the monthly repayment more manageable. Care should be taken with this however as generally the longer the term of the loan, the more interest is payable over the total duration.

Early Repayment Charge (ERC)

An early repayment charge may be payable if you wish to repay the loan early.

Guarantor Loans

A guarantor loan is an unsecured loan and requires another person to act as a guarantor for you. The guarantor would need to be willing and able to make your monthly payments if you were unable to do so.

Income Multiples

This will vary depending on the mortgage lender; however some lenders will determine how much they would be willing to lend you based on a multiple of your annual income.

Indemnity Policy

An insurance policy to cover a property against any costs that may arise as a result of a specific defect stated in the property's title. It is usually a legal defect that is unlikely to become a problem in the future or cause any financial loss – however there is potential that if it did become an issue then the costs of rectifying it would be large. For example, some older properties have a covenant stating that there can be no further developments without the express permission of the builder, but it may not be possible to track down the builder 100 years later, so building work goes ahead. In theory the builder's descendants could then raise an objection and the work may need to be undone – It would seem unlikely that this would happen but it is well worth taking out the policy to cover the cost. It is always better to have the defect in the property title removed where possible so that it no longer exists but sometimes this is not possible as in the example given, then it is necessary to take out an indemnity policy. These types of policies are usually paid for as a one off premium and the cover will be in place perpetuity (forever) regardless how many times the property changes hands, although if the value of the property changes you will need to amend the limits on the cover and a premium may be payable for the changes.

Offshore company

A company which is registered outside the UK and operates from another country. An offshore company is sometimes incorporated to enable a business to benefit financially – it is usually set up in a country seen as a 'Tax Haven' where the company will not be liable to as heavy taxation as in the owner's home country and in countries where legal regulation is lighter. Offshore companies are also a way to protect assets that may otherwise be at risk.

Personal Loan

A personal loan is not secured on your home or any other asset. Generally, you can borrow up to around £25,000 without any form of security.

Self Invested Personal Pension (SIPP)

Government approved pension plan that allows you to choose where the money that you pay in is invested. All the investment products available are approved by HM Revenue and Customs. There are limits on how much you can pay in each year and there is a requirement to purchase an annuity before the age of 75.

Prohibition Notice

Usually served by a Local Authority on a property where it is believed the condition causes a serious risk of serious personal injury. The advantage of this type of order is that it can have immediate effect.

 

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