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What is Bridging Finance?

Hearing that there are options to work on bridging finance has brought up questions on what exactly bridging finance is and whether or not it will really help with your problems. While there are situations that stop you from really having what you need in your finances to make sure that everything falls into place in that fragile balance between income and expenses, the concept of a bridging loan may actually help you.

  • Basically, a bridging loan is a loan that is short term, used so that when you need a short-term fix, it will take care of that gap while you arrange your permanent and long term funding. For this reason, it is a great idea when you happen to need money very quickly, but you know it will not be for a very long time period. There are several instances where you might want to consider a bridging loan, and so now is the time to take a look at them.

    First of all, if you are trying to find the funding so that you can restore or repair a property and you do not have a long-term mortgage agreed upon and already put into place, you may want to consider a loan. Allowing you to purchase your new property before you have sold the existing one, financing a property purchase where improvements and repairs are being made before it is resold again, buying an overseas property so that you can have time to arrange the local mortgage, or finally needing the money to buy a property from auction, the funds are needed in a timely fashion. If there is a situation where you simply need the money for the short-term, then a bridging loan is probably going to be the best option you can have. You actually can use them to help raise your capital before you get a second mortgage on a property.
These particular loans are better because they would be approved quickly so that you can use those funds. As a short term loan, the need to prove you have earnings or the ability to repay often isn’t looked at, and instead, they would like the security value in the property. It is very unlikely that you will look at a loan that has more than 75% of your property’s valuation, and if you happen to be buying and selling, then you might run into having 100% of that property value advanced, since you pledge both properties. This process can be really fast, though, so if you have an opportunity, make sure you take advantage of it before it’s gone.

The interest on these particular loans is daily, as well as there being a set up fee, as well as one on valuation, and while they might be considerable, it is important that you get multiple opinions so you know where the best deal is, and then those elements will wind up going towards the loan balance. So, when you finally reach the end of your bridging period, the interest is then added on. If you think the loan might last for a few months, you have the option of paying the interest monthly.
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