Clarifying Common Short-Term Loan Misconceptions

Understanding Short-Term Property Loans 

Short-term property loans are a flexible financing option designed to provide fast access to funds for property purchases, refurbishments, or renovations. Bridging loans are ideal when traditional financing is not suitable, flexible enough or available in a timely manner.

Whether you’re purchasing, refinancing, or releasing equity from a property, our bridging loans, secured by first or second charges on owner-occupied or investment properties, can help. They’re also especially useful for covering cash flow during property transactions. We offer bridging loans that are highly flexible and can be delivered swiftly. These loans are available for 3 to 24 months and can be secured on a variety of property types.

Residential Bridging Loans

Residential Bridging Loans can be secured on residential investment properties, student accommodation and HMOs on first charge. They are ideal for residential purchase, refinance, property improvement or to unlock working capital to make further investments.

Commercial Bridging Loans

Commercial Bridging Loans can be secured on office buildings, retail units, industrial premises, hotels, residential investments and residential land that has planning permission. These loans can be used to purchase or refinance commercial property, for property improvements or for unlocking capital for commercial purposes, such as commercial property auctions.

Light Refurbishment Loans

Light Refurbishment Loans are designed to fund projects that do not require planning permission and are made in three stages. Like our other bridging loans, these loans provide fast bridging finance and can be secured on buy-to-let houses, licenced HMOs, residential investments, student accommodation and owner-occupied retail, industrial and officer properties.

Common Misconceptions

Short-term bridging loans are commonly used by property investors, developers, and businesses that need quick capital for time-sensitive opportunities. Unlike conventional mortgages, which involve lengthy underwriting and stringent criteria, short-term loans focus on asset value and the exit strategy.

Despite their practicality, there are several short-term loan misconceptions that may cause hesitation among brokers and their clients.

Misconception 1 – Short-Term Loans are only for People in Desperate Situations

One prevalent myth is that short-term loans are solely used as a last resort by borrowers in financial distress. While they can certainly provide a solution in urgent circumstances, they are far from being just a crisis tool. Many successful property investors and developers use short-term loans as a strategic financing option to seize opportunities that require immediate funding.

For example, an investor looking to purchase a property at auction may require fast access to capital to meet tight completion deadlines. Likewise, a developer may need temporary funding to complete a refurbishment before securing long-term financing. These scenarios highlight how short-term loans can be a strategic and calculated choice rather than an emergency measure.

Misconception 2 – The Application Process is Long and Overly Complex

Another common short-term loan misconception is that applying for one is a drawn-out and complex process. While traditional mortgage applications can take weeks or months, Alternative Bridging operate with speed and efficiency. We can often provide agreements in principle very swiftly and release funds far more quickly than a high street bank could. Furthermore, as a principal lender, we have immediate access to funds, therefore, speeding up the process even further.

The key to a smooth application is preparation. Brokers who ensure that their clients have essential documents ready, such as property details, valuation reports, and exit strategies, can significantly speed up the process. Unlike high-street banks, we focus on pragmatic lending decisions rather than excessive red tape, making the process far more efficient. With over 30 years of experience, we are able to balance speed with due diligence.

Misconception 3 – Short-Term Loans are Too Expensive

There is a perception that short-term finance is prohibitively expensive. When used strategically, this is often not the case. Short-term loans can allow investors to get a better ROI through acquiring property that might otherwise be inaccessible by having to wait for a mortgage.

For example, a property investor who secures a bridging loan to purchase a below-market-value property at auction can complete the transaction quickly and then refinance at a lower rate. Similarly, developers who need funds to complete a project can use a short-term loan to avoid delays, keeping their plans on track and preventing costly penalties or lost opportunities.

Brokers can help clients by assessing the overall financial benefits rather than just the headline rate. When the loan is structured correctly and used for a well-planned investment, the cost is outweighed by the financial gains.

Misconception 4 – Short-Term Loans are Only for Large Developers

While property investors and developers are common users of short-term loans, they are not the only ones who can benefit. Homeowners facing chain breaks, landlords needing to refurbish a property before refinancing, and businesses seeking to purchase commercial premises can all use short-term finance effectively.

A common example is a homeowner who has found their ideal next property but has yet to sell their existing home. A bridging loan allows them to complete the purchase without waiting, giving them time to sell their previous property at the right price rather than accepting a lower offer due to time pressure.

Misconception 5 – A Short-Term Loan Only Makes Sense for Long-Term Investments

Some borrowers assume that short-term loans are only suitable for long-term property projects or investments, but this is not the case. These loans serve a variety of immediate needs, from preventing property chain collapses to covering urgent refurbishment costs.

A good example is a property investor purchasing at auction. The auction house will typically require completion within 28 days, which is often unachievable with a traditional mortgage. A bridging loan enables the purchase to be completed on time, and the borrower can then refinance onto a longer-term product once everything is settled.

Conclusion

Short-term property loans can be a very convenient tool that offers flexibility, speed, and practical solutions to property financing challenges. By dispelling short-term loan misconceptions, you or your client can take advantage of the benefits these loans offer, from rapid approvals to strategic financing options.

Rather than being complex or expensive, short-term loans are often an excellent solution for those who need fast, adaptable funding. Whether assisting a homeowner looking to secure their next property or helping a developer keep a project on track, brokers who understand and promote short-term finance can add real value to their clients’ property transactions.

If you have any questions about our range of short-term loans or have any other queries, our experienced BDMs are on hand to assist.