When you are thinking of taking out bridging finance, it is essential to make sure that you are choosing the right product according to your financial situation and goals. External funding is an invaluable resource for the progress and growth of your business. You may need a large amount of money at each stage of development at short notice. That is where a business bridging loan comes in. However, to decide whether this type of loan is right for business or not, you need to consider different aspects of the product carefully. Here we are describing some essential questions that you must ask before making an application.
How Can You Use A Bridging Loan?
What makes bridging finance different from other forms of borrowing is that you can use it for a wide range of purposes. Typically they are used to complete the purchase of a property or land. But you can also use these funds as an intermediary until you secure a long term loan. You can repay the loan amount after getting funds from another resource.
What Types Of Products Are Available?
Bridging lenders offer great flexibility and offer products according to your current circumstances. Usually, there are two types of products, including open and closed bridging loans. Both products operate in different ways, and you need to understand each of them to make an informed decision and choose the right one for your business.
Closed bridge finance requires you to repay the loan amount by a specific date. This type of debt is perfect in a situation when you are waiting for funds to become available by the sale of a property. You can use the loan amount to purchase a new property and repay it after the completion of the sale of the existing property.
Open bridging finance does not have any fixed repayment date. But usually, you have to pay the debt within 12 months. You can use this type of debt in situations when you do not have any confirmed date of getting loan term funds.
How Much Can You Borrow?
The amount that you can borrow may vary from lender to lender. The amount usually depends on the value of the property that you are using as security. Most lenders offer 75% LTV; however, you can also get 100% bridging finance. If you want to get 100% LTV, you have to put in extra security to ensure to the lender that you will repay the loan amount on time.
What Is The Loan Term?
A bridging loan is a type of short term loan UK that usually lasts up to 36 months. However, many bridging loan providers now are offering bridge funds for the long term too. You must keep in mind that the longer you take to repay, the more interest you need to pay.
How To Secure Bridging Debt?
Bridging loans UK are secured types of debts, so you need to use your valuable asset, usually a property or land, as a security to get funds. Unlike mortgage loans, there is no restriction on the type of property. You can even use a non-standard or uninhabitable property as collateral. Using collateral can help you in getting the confidence of your lender, but you should be aware that you are putting your property at risk of repossession.
How Is A Bridging Loan Repaid?
Another thing that makes this type of debt valuable for your business is the flexibility in repayment. Usually, the lenders offer three repayment schemes, including monthly interest, retained interest and rolled-up interest. This way, you have the option to either pay interest monthly or at the end of the loan term.
We hope that the above-mentioned question will help you in selecting the right bridging lender and the loan product for your business.