Bridging Loans Finance – Is It For You
There are times that bridging loans finance can be a lifesaver. Most simply defined as a “short term loan intended to cover costs during a period of change”. Any loan that is secured by a property is a mortgage, whether for one year or thirty. Bridging loans are a quick source of cash, typically one to 3 years in length with slightly higher than normal interest rates.
As with any loan, being unable to keep up to date with repayments is perhaps the most serious risk. This is especially the case with bridging loans as the interest rates are relatively high. This is due to the short-term nature of the loan.
Since all bridging finance is secured, defaulting on the loan is going to put your asset at risk. Creditors have a variety of legal options at their disposal to compel you to pay which include court proceedings, demand letters and ultimately a judgement which could force your company into liquidation. It is vital that you are confident in your ability to repay the loan within the terms.
Exit Strategy Failure
Since bridging loans is finance intended to cover the space between two clear points, the exit strategy is an essential part of the process. Usually, this is the selling of a property or business. And, where the sale falls through – for whatever reason – bridging loans lenders can find themselves caught in a hard place. The failure of the exit strategy is also worth considering because selling a property depends upon factors outside of your control, such as the state of the housing market.
Whatever your exit strategy is, it would be wise to consider a contingency plan should that situation arise, which may involve extending the finance. Correctly planned finance always factors in enough financial space for whatever eventuality arises.
Breaching the Terms of Your Bridging Loan
It’s worth stating that some bridging finance is unregulated, which means that some lenders have their own terms and conditions. You need to read the fine print very carefully before signing on the dotted line. This will help to understand what the fees, payments and charges are, and when they’re due.
You also need to understand what the agreed terms of the loan are, to ensure you do not breach them. Many lenders prohibit the renting of a property while it is waiting to be sold for example, so borrowers who choose to rent their property without realising this might risk property repossession.
Does a Bridging Loan Affect Your Credit Score?
Credit scores are affected by the number of recent applications, so if you were to apply unsuccessfully for a loan it would be indicated on a subsequent credit check unless a period of time elapses.
Bridging loan finance providers are less concerned by particular credit ‘scores’. They are not the same compared to mortgage lenders. Obviously, companies with good credit are more attractive to lenders but it is certainly possible to obtain bridging with credit issues in place. Basic Finance believes that everyone should get a chance with finance. You can have confidence that we will tailor a loan to suit your personal circumstances.
To Minimise Risks, Check the Fine Print
Perhaps the biggest risk with bridging loans is to enter into an agreement that may hold surprises for you. Many people seek bridging loans in a state of urgency, perhaps chasing a particular property deal or a large unexpected business expense. It can be too easy to race through the process without doing your due diligence.
Our suggestion is to get professional advice and ensure that any document you are signing is clear, transparent and understood. Once you are confident this is the right choice for you, get in touch with Basic Finance.