The time that you will find bridging loans most helpful is when you need money faster than you can get it from a bank. Most of the time, in fact, you will be getting money from a long term lender to pay off this short term loans that you have taken out in the form of bridging finance. Although there will be other times when you are able to pay off the loan from money that you acquire in a different way.
The way that bridging finance works is very simple. They are a lot simpler to acquire than a bank loan is, or just about any other form of loan. They have to be of course, because that is why they are able to be approved so quickly, which is perhaps the most important feature of a bridging loan. Instead of having to go through credit checks or having to prove your income, all you'll need to do is show that you own an asset or assets which can be used to recoup the loan should you not repay it.
However much you are looking to borrow, you will need to own something that is worth slightly more than that, to be able to cover the interest payments as well should you have to default. The reason is usually has to be a real estate property is that most bridging lenders have minimum amounts that they are willing to lend, which is usually at around the 25,000 mark.
Let's look at a few example of how bridging finance can be used. It might be the case, for example, that you want to add value to your home before you sell it. You therefore decide that you want to refurbish a few rooms, or you want to add an extension to the house. Normally you would be able to get a bank loan, but perhaps time is a factor meaning that you want to get started as soon as possible. You can get the bridging loan, get the work done, and from the added value of your home you will be able to sell at a higher price.
Or let's have a look at it from a business' point of view. Perhaps they are doing well and are looking to expand. If they do not act quickly however, perhaps a competitor will buy the property instead. A common example of this is when farmland is involved, and a farmer wants to buy adjacent land to expand into before other farmers in the area can. With a bridging loan they will be able to do that, and then sort out the long term mortgage later.
In other situations, a long term loan will not be necessary at all. For example, perhaps a stock is at a bargain price and you need the money to buy it immediately while it is still at that price. Then, when it rises in price, you can sell it off and pay off the bridging loan, and also have profit left over for yourself. Of course this would be quite a risky avenue to take.
Another time when bridging finance is particularly useful is when you are in a very bad financial situation. Whether you are facing bankruptcy or repossession, you can avoid these things by taking out a bridging loan. Depending on your situation, you can then use the time that this gives you to get in a position to make your payments again, and after a certain amount of time be taken on by a long term lender again. Either that, or else you will be able to sell your assets, get full price for them, and then pay off the bridging loan from the money you make in that way.
As you can see, therefore, there are many ways that bridging loans can be utilised to your advantage. They do have high interest rates, however, which is why they should only ever be used in the short term, and not as an alternative to a normal bank loan.
The way that bridging finance works is very simple. They are a lot simpler to acquire than a bank loan is, or just about any other form of loan. They have to be of course, because that is why they are able to be approved so quickly, which is perhaps the most important feature of a bridging loan. Instead of having to go through credit checks or having to prove your income, all you'll need to do is show that you own an asset or assets which can be used to recoup the loan should you not repay it.
However much you are looking to borrow, you will need to own something that is worth slightly more than that, to be able to cover the interest payments as well should you have to default. The reason is usually has to be a real estate property is that most bridging lenders have minimum amounts that they are willing to lend, which is usually at around the 25,000 mark.
Let's look at a few example of how bridging finance can be used. It might be the case, for example, that you want to add value to your home before you sell it. You therefore decide that you want to refurbish a few rooms, or you want to add an extension to the house. Normally you would be able to get a bank loan, but perhaps time is a factor meaning that you want to get started as soon as possible. You can get the bridging loan, get the work done, and from the added value of your home you will be able to sell at a higher price.
Or let's have a look at it from a business' point of view. Perhaps they are doing well and are looking to expand. If they do not act quickly however, perhaps a competitor will buy the property instead. A common example of this is when farmland is involved, and a farmer wants to buy adjacent land to expand into before other farmers in the area can. With a bridging loan they will be able to do that, and then sort out the long term mortgage later.
In other situations, a long term loan will not be necessary at all. For example, perhaps a stock is at a bargain price and you need the money to buy it immediately while it is still at that price. Then, when it rises in price, you can sell it off and pay off the bridging loan, and also have profit left over for yourself. Of course this would be quite a risky avenue to take.
Another time when bridging finance is particularly useful is when you are in a very bad financial situation. Whether you are facing bankruptcy or repossession, you can avoid these things by taking out a bridging loan. Depending on your situation, you can then use the time that this gives you to get in a position to make your payments again, and after a certain amount of time be taken on by a long term lender again. Either that, or else you will be able to sell your assets, get full price for them, and then pay off the bridging loan from the money you make in that way.
As you can see, therefore, there are many ways that bridging loans can be utilised to your advantage. They do have high interest rates, however, which is why they should only ever be used in the short term, and not as an alternative to a normal bank loan.
About the Author:
Mark Pollok is a an author at Bridging Loans UK, where you can get bridging loans for any purpose.
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