Bridging finance is a short-term funding solution that helps individuals or businesses bridge the gap between the purchase of a new property and the sale of an existing one, or any other scenario where finance is needed quickly. This type of finance is available in the UK and is becoming increasingly popular with property developers, landlords, and homebuyers.
Bridging finance is typically a high-cost finance option as it involves a higher level of risk than other forms of lending. However, it is often the only solution for those who need to secure funds quickly, without the hassle of lengthy application processes, or those who do not meet the strict criteria required by mainstream lenders.
Bridging finance can be used for a variety of purposes, including:
Property Development: Bridging finance can be used to fund property development projects. For instance, it can be used to purchase land, to finance the cost of construction, and to fund refurbishments.
Auction Purchase: Bridging finance is an excellent option for those who want to purchase property at auction. This type of finance can provide the funds needed to complete the purchase quickly, without waiting for the sale of the existing property.
Chain Break: Bridging finance can also be used to break a property chain. For instance, if an individual wants to purchase a new property before selling their existing one, bridging finance can be used to provide the funds needed to secure the new property.
Short-Term Cash Flow: Bridging finance can also be used to improve cash flow in the short-term. For example, if a business needs funds quickly to pay off a debt, bridging finance can be a viable option.
Types of Bridging Finance:
Closed Bridging Finance: This type of bridging finance is used when a sale has already been agreed, and there is a set date for the completion of the sale. Closed bridging finance is less risky than open bridging finance as the lender has a clear exit strategy.
Open Bridging Finance: Open bridging finance is used when there is no clear date for the sale of the existing property. This type of finance is riskier than closed bridging finance as the lender does not have a clear exit strategy.
First Charge Bridging Finance: This type of bridging finance is secured against the borrower’s property, and the lender has the first legal charge on the property. First charge bridging finance is less risky for the lender as they have priority over any other lenders.
Second Charge Bridging Finance: Second charge bridging finance is secured against the borrower’s property, but the lender has the second legal charge on the property. Second charge bridging finance is more risky for the lender as they have a lower priority than any first charge lenders.
Advantages of Bridging Finance:
Quick Access to Funds: Bridging finance provides quick access to funds, which is ideal for those who need finance quickly.
Flexible Repayment Terms: Bridging finance offers flexible repayment terms, which is ideal for those who need finance for a short period.
No Early Repayment Charges: Many bridging finance providers do not charge early repayment fees, which is ideal for those who want to repay their loan early.
No Credit Checks: Bridging finance providers do not always carry out credit checks, which is ideal for those who have a poor credit rating.
Disadvantages of Bridging Finance:
High-Interest Rates: Bridging finance comes with a higher interest rate than other forms of finance due to the higher level of risk involved.
Short-Term Solution: Bridging finance is only a short-term solution and is not suitable for long-term finance requirements.
Complex: Bridging finance can be complex, and it is important to understand the terms and