Bridging finance and medium term loans
As most of us are fully aware since the credit crunch the traditional lenders have significantly tightened up their lending criteria, making it more difficult to obtain mortgages, loans, credit cards and other forms of finance. Even loans and finance facilities that can be secured on valuable property assets are more difficult to obtain, as lenders have reduced their loan to value requirements and tightened their income ratios and credit worthiness requirements.
Consequently many customers who would have normally been able to secure finance facilities without experiencing any problems before the credit crunch, have been unable to do so since. People who require finance in order to trade or grow their businesses but who have been declined through their normal sources have looked elsewhere and some have found suitable facilities through commercial bridging finance.
However bridging loans are specifically meant to be used as a short term method of borrowing for periods of up to 6 months or an absolute maximum of 12 months. Bridging loans have much more flexible underwriting criteria meaning that people who have been unable to find finance elsewhere have been able to obtain bridging finance.
This is all well and good if the money is to be used to fund short term projects, but if the money is required for longer periods than a year, or there is a risk that repaying the loan could take longer than first hoped, bridging loans should be avoided.
Due to the tighter lending criteria of the banks, and the subsequent increase in demand for bridging loans, some bridging finance providers are beginning to provide medium term loans.
Medium term loans offer the flexible underwriting found with a bridging loan, but rather than being a short term loan of up to 12 months, they offer finance facilities for periods of up to 3 years. Rolling up the interest is not generally an option, so monthly interest payments have to be made. Due to the longer term of the loan interest rates do tend to be cheaper than for bridging loans.
Medium term loans are an option for people who have been unable to secure finance through their more traditional sources but urgently need to raise finance for the short term. They are useful provided there is method of repaying the loan within a 3 year period, but should not be considered as a temporary measure if there is no firm plan about how the loan is going to be repaid.