What is Bridging Finance Used For?
Think of bridging finance and the first, and quite often only, use that springs into many peoples’ heads is something that is used to bridge a gap in finances when buying and selling a property. Indeed bridging finance has for decades been used to complete property purchases before the sale of another property. Bridging finance raises the funds required to complete the new purchase and is repaid once the sale of the existing property has completed.
This is just one use of bridging finance. Due to the speed with which bridging loans can be arranged, their flexible lending criteria, and as a short term finance option they are often the most cost effective option, bridging loans have many other uses.
The fact that it is possible to arrange bridging loans in just 48 hours, in addition to them being able to be used for any legal purpose, makes them a popular option when funds are required urgently. For example, to stop a repossession, pay an urgent tax or VAT bill, purchase a bargain, cover a gap in cash flow because someone has failed to pay you or some unforeseen circumstances.
Flexible lending criteria makes bridging finance a popular option when other lending options are not available due to stricter criteria. Bridging finance providers have more flexible criteria than other lenders meaning that a poor credit history such as missed finance repayments, county court judgements and defaults do not necessarily exclude them from providing bridging loans. In addition they are also more flexible about income proof or confirmation, since they are only providing a short term loan.
Also as part of their flexible lending criteria bridging lenders will often lend using property as security which is derelict, run down or in a very poor state of repair. Many traditional lenders will refuse to lend on property that requires repair work or has other issues, meaning that in order to secure funds on certain types of property bridging loans can often be the only option.
The speed with which they can be arranged, flexible lending criteria and flexibility over the type of security property, makes bridging loans a popular option for funding auction purchases and also for purchasing and funding small development projects when run down properties are renovated, converted or have a complete change of use. For example buying an old run down pub and converting it to a residential house or into flats.
Because bridging loans are only a short term finance option, once the work has been completed the property will then either be sold in order to repay the bridging loan and make a profit, or it will be refinanced using a long term finance facility and kept as an investment property, in which case it will probably be rented out.