The Bridging loan market is rapidly expanding as more individuals and businesses take advantage of this tailored financing service. Â£2.5bn of bridging finance was estimated to have been loaned and although seeing a slight slowdown in 2012, it continues to grow at 25% a year. The loans are short term and interest only, and they are secured on property and other high value assets.
Typically, the specialist lenders offer a personalised service, taking a more common sense approach to the loanerâ€™s circumstances to more traditional financial institutions. As high street lenders continue to balance their books after the 2008 sub-prime mortgage crisis, individuals and companies are finding it increasingly difficult to borrow. Take a look at these four ways individuals and businesses are using bridging loans to finance a variety of projects.
Take advantage of demand
As lending has become a lot more challenging, some firms are in a position where they cannot borrow money in order to finance meeting consumer demand. This means missing out on an opportunity they have spotted before their competition and inevitably a loss in potential sales. Due to the bespoke nature of bridging loans, the money is often with you in less than a week, allowing you to purchase your stock, make your profits and pay the money back.
This is especially useful for buy-to-let property developers who can gain funds to purchase a property in a lucrative renting area at auction or when sellers are looking to make a quick sale. This allows purchase of the property and sourcing a mortgage at a later date, allowing you to take advantage before your competitors.
When buying a property, statistically the more people in the chain, the more likely it is that the sale will not go through. Again, as the lending market is tight due to the current economic climate, the likelihood of the chain collapsing is high. Sometimes you can agree to lower the prices in the chain to ensure the sales go through, especially when it is a relatively small amount. The more people in the chain however, the more unlikely that option becomes.
Acquiring a bridging loan to fund this kind of transaction may not be the best thing for you to do, and it is important to have an exit plan in place. The finance is obviously a short term method, and if you home is likely to be resold in the near future, this could certainly be a great option for you. It is also useful for a â€˜closed bridgeâ€™, when the contracts have been exchanged but there is a hold up on your buyers end.
Land for development
Cases of commercial businesses using a bridging loan to fund a new office development, or property developers buying land to build on is increasing rapidly. Omni Capital has recently completed a Â£20 million bridging loan to fund a high-end residential development in Surrey, showing the flexibility of the bridging finance market. These kinds of deals are becoming more and more common, especially as the market becomes more mature.
Companies with many invoices and assets can use bridging finance in order to take out a loan to cover short term cash flow issues. Invoice factoring is also another method in which cash can be freed from invoices, however this is a longer process and in many cases you are likely to pay a higher premium. If there is only a short period of time where you need a little more credit, bridging loans are certainly more attractive to certain industries.
Overall the bridging loan market is here to stay, offering a unique service that has rapidly emerged as a real alternative to high street lenders. With even wealthy asset heavy customers getting turned down for finance, they are increasing turning to bridging for real options in the finance market.
Written by Jonathan on behalf of Balmoral Bridging, who offer business related bridging loans between Â£150000 and Â£1 million on a case-by-case basis.