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If you are looking for short-term finance, then a bridging loan may be a good option to consider. This guide looks at the main reasons people opt to use bridging finance and to see if a bridging loan is suitable for your needs.
You want to buy a property but still have another to sell
This form of finance can be a good idea if you are looking to buy a new property but still have your existing one to sell. Getting caught up in a property sale chain can leave you stuck in the middle of one of the other buyers or sellers is unable to complete.
Without the funds from your due to be sold property available, a bridging loan can mean you can still buy your new one. The loan is then repaid once your existing property is successfully sold.
Buying land that still needs planning permission
When looking to obtain a mortgage to develop land, planning permission is often required to be in place before the loan can be approved. If you are confident that it will be granted, you could use a short-term bridging loan to buy the development site without waiting for planning permission. Once it has been granted and your mortgage is in place, you can then repay the bridging loan.
There’s a property you’d like to buy at auction
With a standard loan potentially taking more than a month to complete, it is possible to use auction finance from a bridging loan provider to buy a property at auction. This means you won’t have to lose out on a sale. Once the mortgage process has been completed, you can use the funds to reimburse the original bridge loan.
To develop an unlivable property
Staying with the property development theme, a bridging loan can also be used to buy a property that is currently uninhabitable or in a dilapidated condition. Many mortgage companies are unwilling to offer a mortgage on an unlivable property, so you could use the bridging loan to buy the house and complete the renovation. Once it is habitable, you can put a standard mortgage in place.
Bridging loans can also be used for non-property purchase reasons. Here are some other situations where a short-term bridge loan can be beneficial:
Paying an unexpected tax bill
A business can sometimes find itself with an unexpected tax demand that it can struggle to pay on time. The tax bill can be paid by the deadline with a short-term loan, meaning the business can avoid any extra late fee charges.
You need short-term capital
Whether it’s a seasonal drop in income or a short-term need for funds to buy essential stock or equipment, businesses and enterprises can use a bridging loan to bridge a temporary gap in their finances.
You have been refused credit
If a poor credit history stops a borrower from being approved for a standard loan, some bridging finance companies will consider an application for a short-term loan.
One final thought
When considering bridging finance, you need to be mindful that you will be expected to provide security in the form of a property or commercial asset to guarantee the loan. So, it is strongly advised that you always get expert guidance from a bridge finance specialist before making any final decisions to apply.