Our Alternative guide to Bridge Financing

Bridging loans are designed to ‘bridge’ a financial gap in property transactions. They are a form of short-term financing, often for 12 months or less, that allows borrowers to secure funds quickly,   While they are waiting for long-term financing to come through or for an asset to sell.   This feature makes bridge financing an attractive option in time-sensitive situations, such as buying a property at auction.   Or, preventing a property chain from collapsing.

A typical bridging scenario

A typical bridge financing scenario is when a homeowner has found their ideal new home but hasn’t yet sold their existing property. They may opt for a regulated bridging loan to secure the new property, then repay the loan when their existing property is sold.  Similarly, property developers often use unregulated bridging loans to finance the purchase or renovation of properties.   Before securing longer-term finance like a buy-to-let term mortgage or selling the completed project.

Beneficial in Business Situations

Furthermore, bridging loans can also be beneficial in business situations.  Situations such as covering short-term cash flow issues or seizing a time-limited business opportunity.

The flexibility and speed of bridge financing can be extremely beneficial.  It provides an immediate cash boost while you wait for longer-term funding.

The length of a bridging loan can vary, but they typically last from a few weeks up to 12 months.  Some lenders, however,  offer terms of up to 24 months.   The term length largely depends on the borrower’s needs and the lender’s criteria.   Regulated bridging loans cannot be for longer than 12 months.

Exit Strategy

It’s crucial to have a solid exit strategy in place before taking out a bridging loan.  This plan outlines how the borrower intends to repay the loan.  This is typically done through the sale of a property or securing long-term finance like a buy-to-let mortgage.   The lender will need to assess and approve this exit strategy before issuing the loan. It is their reassurance that the borrower has a viable plan to repay the funds.