Bridging Finance

Bridging finance is a type of short-term loan that is used to bridge the gap between a borrower’s immediate financing needs and their longer-term financing solutions. It’s typically used in situations where a borrower needs quick access to capital, such as to purchase a property before selling an existing one, or to finance a property development project.

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Bridging finance is typically secured against a property or other assets, and the loan is usually repaid within 12-24 months. The interest rates on bridging finance are typically higher than those on traditional mortgages or loans, reflecting the higher risks involved and the shorter-term nature of the loan.

One of the key considerations when taking out bridging finance is the exit strategy, which refers to how the borrower plans to repay the loan when it comes due. The exit strategy is important because bridging finance is a short-term solution, and the borrower needs to have a clear plan for how they will repay the loan within the agreed timeframe.

Common exit strategies for bridging finance include:

Sale of Property

If the borrower is using bridging finance to purchase a property, their exit strategy may involve selling the property once it has been renovated or refurbished. The proceeds from the sale can then be used to repay the bridging loan.

Refinance

Another option for repaying a bridging loan is to refinance the property with a longer-term mortgage once it has been improved or developed. This allows the borrower to repay the bridging loan and continue holding the property as an investment.

Repayment from Other Sources

In some cases, the borrower may have other sources of funding available, such as cash reserves, business profits, or inheritance. These sources can be used to repay the bridging loan when it comes due.

Extension of Bridging Loan

If the borrower is unable to repay the bridging loan within the agreed timeframe, they may be able to extend the loan for an additional period. However, this will usually involve additional fees and higher interest rates.

It’s important for borrowers to have a clear exit strategy in place before taking out bridging finance, and to seek professional advice from a financial advisor or mortgage broker to ensure that they fully understand the risks and rewards involved.

Contact us today to speak to one of our advisers and take the first step towards finding the right mortgage for you.