What is a bridging loan and how are they assessed?

What is a bridging loan?

A bridging loan is a short term loan which is taken out most often using a property as 'security'. A bridging loan can be taken for almost any legal reason, although it is generally used for something to do with property as lenders much prefer this sort of setup.

How is a bridging loan assessed?

A bridging loan is assessed on 3 main factors, which we will take a deeper dive into.

1. Use of funds - what is the money going to be used for?

   
   

2. Security - What property/asset can the lender place a charge against?

   
   

3. Exit Strategy - How is the loan going to be repaid?

Use of Funds

Generally speaking, you can take a bridging loan for almost any legal reason. A good rule of thumb with any form of property finance is that almost anything is doable, you may need to just pay a premium for the privilege. At BridgeCross Finance, we like to live by the rule that there is a lender for every scenario, if you have a scenario you would like to chat through, why not submit an enquiry over to us, here.

Security

Lenders will place a legal charge of the value of their loan on to the title deeds of a property, this is known as the lender taking 'security'. Much like a mortgage, lenders will only lend up to a certain percentage of the total value of security they are being offered, this is known as their 'Maximum loan to value'.

Lenders take security to protect themselves in the event that things don't go to plan, whether that is a refurb project which doesn't sell in time or a property refinance which takes a lot longer than planned. The idea behind the lender taking security is that they could repossess the property and sell it, in order to collect the monies they are owed. In practice, lenders are not in business to repossess clients properties and they would much rather work with the client in order to get their money back, than to actually repossess. That being said, lenders will repossess if needs be and you should never take finance you do not have the means to repay.

Have an out there security which you don't know if you could secure finance on? As above in 'Use of Funds', there are hundreds of lenders in the market, meaning that usually, there will be a lender willing to consider a situation that may seem beyond the realms of attaining finance. If you would like to discuss a property which you'd like to finance, please get in contact with us by submitting an enquiry.

Exit Strategy

This is the big one, this is where a bridging loan either makes sense or doesn't. The exit strategy of a bridging loan is always a lump sum of money coming from somewhere, in one shape or another. This lump sum could be a mortgage, the sale of a property, a pension tax free lump sum, savings maturing, the list does go on and on.

The real question?

'How much are you going to get and does it cover the bridging loan?'

This one simple question is the key to any bridging loan and this is what every lender in the market is trying to determine. If your exit strategy is bullet proof, you can be sure that you will be approved for bridging finance.

Want to play around with our bridging finance calculator? Find it here.