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Fully understanding Bridging finance in the UK

A bridging loan is typically a short-term loan that a company uses to supply cash for a business transaction until a long term solution can be arranged. A short term property loan almost always requires that you offer some sort of security for the mortgage. You could offer up commercial or private property that you own or other substantial collateral.

Whilst researching bridging finance you will come across the terms closed bridge and open bridge. Generally speaking a closed bridge is where the 'exit route' or 'settlement source' is already arranged typically where agreements have been exchanged but the funds are not going to become attainable in time. On the other hand, an open bridging mortgage means that there is not a confirmed settlement method. As with most things financial, there is a grey area between the two. The biggest things is to make sure you are arranging the right finance for your circumstances.

Being self employed or having an adverse credit history or CCJs need not be a problem. Short term property finance can even enable people who have an adverse credit history to build a track record before applying for a conventional loan.

Who uses Short term property finance

In the business investment market bridging loans can be used for completing purchases quickly; for example, when property has been secured at auction. They can also be cost-effective for clients wishing to acquire business for refurbishment and re-sale. A short term property loan can typically be used for any genuine commercial purpose as a short-term measure. Because of the short-term nature of the mortgage however you should expect to pay more interest and higher fees than with a permanent mortgage.

How A short term property loan Works

Lenders make their profit by charging interest across the life of a loan. With a bridging loan the shorter the mortgage period the less interest they earn, as a result the rate may be higher. A short term property loan can be structured so that there is no need to make interest payments each month, the interest is effectively paid in advance with any over payments repaid when the mortgage is redeemed. Since a short term property loan usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of mortgage.

Listed below are some of the reasons for choosing short term property finance

• A short term property loan can be used to purchase properties at auction thereby avoiding the problem of completing the purchase within 28 days. A short term property loan is often completed in days rather than weeks.
• To avoid bankruptcy of other financial crisis by releasing the equity in a property
• To raise capital for any purpose, pending a sale or refinance of the security business.
• Short term property finance can be used to help fund the purchase of a business abroad, although the business used as security would normally need to be within the UK.
• A short term property loan is increasingly used for business development including site aquisition, self-build projects and property conversions.
• Provide temporary funding for the purchase of a 'defective' business, pending completion of repairs.

Because short term property finance can be based on the Open Market Value of the property it is very common to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of short term property finance to most business investors who are often willing to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the mortgage. Typically the term for bridging finance runs from a few days to as long as two years. Of course, any terms can be negotiated and a motivated bank will work hard to accommodate your needs.

Where to go for A short term property loan

The best way to secure a short term property loan at the most favourable rates and terms is to work with a UK Business mortgage Broker who understands the ins and outs of bridge finance. By using a broker you can get your application in front of as many appropriate banks as possible and end up with several who are able to compete for your commercial property. A short term property loan can either be based on the limited sale value of a property or the Open Market Value (OMV). The inadequacy is simply down to the preference of an individual lender, a specialist commercial broker will be well aware of the difference and should ensure that this is made clear to the client.