Bridging loans have some very specific uses
Bridging loans are most commonly used to help fund the purchase of property to keep a sale chain in place, making use of their short term borrowing status. Because bridging finance can be arranged quickly it is also commonly used for purchasing property at auction, due to the fact that auction purchases need to be completed quickly.
Due to the speed that they can be put in place and also underwriting criteria that is more flexible than most other sources of finance, bridging loans are often a useful facility to stop repossessions. If a property is facing repossession then a bridging loan can often provide the funds to stop the loss of the property. Once the repossession has been stopped, the owner or owners of the property will need to repay the bridging loan, as they are an unsuitable and expensive method of borrowing over the long term. Stopping the repossession will buy the owner time to sell the property, or alternatively raise or release the funds from another source. It is important not to use the bridging loan to put off the repossession to a later date.
Property that is in need of renovation can often raise the funds required to complete the renovation work through bridging finance. Once the work has been completed the property can be sold or refinanced to repay the bridging loan.
The speed with which bridging loans can be arranged make them a popular solution for individuals and businesses who have to raise money quickly in order to clear debts. Commercial bridging loans are often used to clear tax demands or petitions for bankruptcy. If a bridging loan is used for clearing debts it is very advisable to look at and find a way to prevent such problems arising again, as next time a bridging facility may not be available! Businesses may need to look at reducing costs and becoming more efficient. They may need to expand, develop new ideas and products in order to give the business a needed boost and secure new orders. Restructuring to achieve greater efficiency in addition to or instead of cutbacks may also be an alternative to consider.
Businesses and individuals use commercial business loans to buy a bargain and ‘flip it’ for a quick profit. This basically means that when an individual, or business, see a bargain they may want to purchase it to sell it on for a profit. When a bridging loan is used to finance the purchase of the bargain, it is usually desirable to flip the bargain quickly, therefore reducing the costs of monthly interest payments. Quite often when a property is purchased that is going to be turned around and sold quickly, a buyer may already be in place. This is very sensible as the facility will be for a closed bridging loan and the time that the bridging loan is required will be shorter, therefore saving on interest repayments.
Commercial bridging loans can be used to bridge a cash flow gap that maybe caused by a large customer who is late paying their account, or to provide finance required to be able to meet a large order.