Are bridging loans a viable option in uncertain times?

Bridging loans are a good option for those looking to act fast and who have a longer-term financial strategy in place. They do, however, come with their fair share of risks and it is important to have fully explored all options available to you before making a decision.

What is a bridging loan?

A bridging loan is a short-term loan, often up to 12 months, which is designed to assist property developers and investors as well as companies and individuals. The purpose of a bridging loan is to 'bridge' the shortfall between payment being due and the primary source of financing being unavailable. Bridging loans are often used as a method of finance to support your longer-term finance methods. It is essential to have an exit strategy in place before committing to terms, as a bridging loan is not a viable long-term finance option.

Advantages of a bridging loan

Speed

Bridging loans can often be obtained far quicker than traditional finance methods. Typically bridging loans can take anywhere from 5-10 days for funds to reach your account.

Breathing space

Organising a bridging loan can give you some breathing space. Whether you are still in the process of selling an existing property to free up funds, or you are seeking to make arrangements for longer-term finance. It can mean the difference between getting the deal done or missing an opportunity.

Relaxed lending criteria

Most bridging loans are secured against an asset of substantial value, usually a property of some kind. As such, the other 'standard' lending criteria bear less weight when it comes to lending, for example, credit scores, proof of income etc.

Versatility

Bridging loans offer you versatility. While closely associated with property, bridging loan providers provide financing for various other use cases such as paying unexpected tax or probate bills.

Use cases for a bridging loan

Meeting deadlines

Transactions often happen at a fast pace. Deadlines are set with everybody involved working around the clock. Deals can often fall at the last hurdle, with delays in funding. Bridging finance offers a temporary solution while waiting for approved longer-term funds, meaning the transaction can proceed to completion.

Property auctions

Property auctions are spontaneous by nature. Often deals are agreed on the spot, with funding not yet secured. Bridging finance allows you to be able to secure your investment at auction while awaiting longer-term finance by way of mortgage.

Managing cash flow

Businesses naturally have their financial ups and downs. It is part of the journey. Whether it be clients settling fees late, an unexpected outgoing or even banks calling in overdraft facilities, a bridging loan can help temporarily plug the gap, short-term, and provide your business with a lifeline.

Paying tax liabilities

You may find that your tax bill is larger than initially anticipated and you need the money fast. A bridging loan is a simple way to obtain funding quickly and avoid the repercussion of late payment of tax bills. It is important to remember, especially in times of added pressure, that a bridging loan is not a permanent measure, but a perfectly valid temporary fix.

Conclusion

Bridging loans are a good option for those looking to act fast and who have a longer-term financial strategy in place. They do, however, come with their fair share of risks and it is important to have fully explored all options available to you before making a decision. If you would like to discuss your options further, please contact us here at AssetLend. We are able to advise on all aspects of bridging finance to make sure it is the right option for you.