When buying a new property while selling another, a bridging loan can be a good solution if you need short-term capital to ‘bridge’ your finances. Here, we look further into the main reasons people choose to use bridging loans.
To buy a property while waiting to sell another
The number one reason for applying for bridging finance – this type of loan can help individuals who find themselves caught in a property chain or who are still waiting to sell their own property. With a bridging loan, property buyers can progress with their new property purchase even if they still have to complete the sale of their current one (or their buyer is still waiting for their own property sale to complete).
In this instance, a bridging loan offers short-term funding that can be used to buy a property and will then be repaid once the money from the sale of a current property is released.
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Buying land before planning permission is granted
When purchasing land intended for development, the long-term loan may require planning permission to be in place before it is approved. If so, a bridge loan could be used to make the initial purchase of the land, provided the developer is certain that the planning permission will be granted.
Buying at an auction
With many standard loans taking more than 28 days to be approved, bridging finance is quicker, and so can be used to make an auction purchase. The bridge loan can then be repaid once the standard loan application has been completed.
Obtaining short-term capital
Many businesses may require short-term working capital to bridge any temporary drops in cash flow. A bridging loan can be a good solution and can also be used should an enterprise need to finance new equipment or stock.
Many mortgage lenders will refuse to offer a mortgage if you buy a dilapidated property, or it cannot be inhabited without renovation or construction work. In these cases, a bridging loan could be used to buy the property and finance the restoration before a standard mortgage is obtained.
Paying an unexpected tax bill
If a business has received an unexpected tax bill that it cannot pay in time, a bridging loan could be used to ensure the levy is paid by the deadline. This means the business can avoid any late payment charges and have sufficient time to repay the bridging loan.
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If you have been refused credit
Our final most common reason to apply for a bridging loan is if a borrower has a poor credit history that prevents them from obtaining a standard loan. In these cases, a short-term 100 bridging loan100% LTV bridging loan could be an option. However, a bridging loan specialist such as Finbri, will require security, such as property or commercial assets, to guarantee the loan.
There are numerous reasons why a bridging loan could be the right solution for your circumstances. Before choosing this route, however, you must get expert advice so you fully understand the process as well as the costs involved in applying for bridging finance.