Bridging finance can be a very useful tool for many small developers.
It helps to secure the funding necessary to cover the costs of building works on a property you have bought. And, bridging loans are a way of easily and quickly securing the short-term funding you are likely to need.
For that reason, bridging loans are prevalent among developers and builders. Figures released by the Association of Short Term Lenders (ASTL) reveal that a total of £4.62 billion in such loans had been advanced by the end of June 2019 – and that the figure represented a 14.4% increase on the previous year.
With so much borrowing in the offing, there are naturally numerous lenders fuelling the market. So, how do you select the one most suitable for your particular needs and requirements?
The answer is likely to lie with a bridging finance broker.
How can a bridging finance broker help?
The principal of a bridging loan is simple and straightforward. You take a loan, secured against the property you intend to develop. This allows you to carry out your building works and repay your loan within a relatively short space of time – i.e. once the works are completed, and you receive the proceeds from its sale or remortgage.
It might be simple in theory but in practice getting the bridging loan on the terms that are favourable to your business and to the development project you propose is likely to be more complicated, as well as slow.
A bridging loan finance broker can not only guide you through the intricacies of the process, but also help in the following practical ways:
Understanding your project
- potential lenders have a keen interest in what your project involves;
- your broker is there to ensure that you present as strong a business case as possible which should include a robust exit strategy – to enhance your prospects of any application being approved;
Matching your needs to the bridging loans available
- because of the sheer choice of potential lenders, a broker uses his or her knowledge of your business and the particular project you have chosen to match these to the relevant lenders. This can include regulated bridging loans as well as unregulated depending on the need.
- If you have financed a development project then your broker could offer development exit finance as the project moves near to practical completion which will reduced your interest charges.
- Property conversions may require development finance or bridging at the early stages
- Buy to sell mortgages are perfect for a ‘fix and flip’.
- Below market value finance allows for a higher LTV on BMV deals.
- Bridging loans are often used at property auctions with some properties sold due to having short leases or otherwise being unmortgageable. A short lease mortgage can be used to buy these properties or perhaps a bridge to let mortgage would be better.
- Probate loans can provide money to pay the IHT bill where there is insufficient cash available.
- There’s also the option for a 2nd charge bridge loan, allowing you to access equity even while a main mortgage is in place.
- Land mortgages are suitable for purchasing plots of land including woodland and agricultural land.
- There are many other ways that you can use a bridging loan.
The broker’s network
- brokers maintain close working relationships with an extensive network of lenders and can scour all of those contacts for the bridging loan appropriate to the needs and circumstances of your particular business – whether you are a sole trader, a partnership or a limited liability company;
- in many cases, lenders within that network reserve certain deals which are available only to brokers – deals that you are unlikely to be offered if you had approached the lender direct;
- although that bridging loans typically attract a higher rate of interest than regular secured finance, your broker shares your interest in securing the most competitive rate of interest on your loan;
- bridging loans for development are typically short-term loans, repayable within 12-24 months. But if you have a project that you already know is likely to overrun or suffer delays, your broker is well placed to negotiate such an extension;
- above all, the involvement of an independent, professional bridging finance broker is likely to make your application process much faster – giving you access to the fast bridging loan funds exactly when you need them so you can seize an opportunity as it happens. This is particularly important when you need finance for buying property at auction.
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Mark has worked in financial services since 1995, initially as a Financial Adviser and then a Compliance Officer.
He has been a Senior Holiday Let Mortgage specialist at Drake Mortgages since 2001. He is often quoted on lenders websites and can be found in the press, talking about holiday let and available finance.