We live in a world where almost everyone’s dreams are sponsored by loans from a financial institution. Even countries have to take loans sometimes, especially when big projects are in view. However, not all loans will suit the purpose or project you are trying to fund. For example, bridging loans are mostly suitable for investors who have another source of funds underway.
The term may be new to many, simply because it’s not the most common loan type on the block. However, it’s a convenient choice for investors who need quick financial aid for emergency projects. To help you make more informed decisions, here’s what to expect when applying for a bridging loan.
1. What is a bridging loan?
A bridging loan is a short-term or investment finance that can help fund an immediate business need. It mostly helps property investors purchase or renovate homes with adequate funds before selling them. However, bridging loans are not limited to such investors – they can serve as funding for other business ventures as well.
2. What’s the lifespan of such loans?
Bridge loans were designed to cater to short-term or emergency projects. They aren’t the type of loans to consider when funding a 12-year project. Because of how ready-to-use these loans are, they usually range from a month to about 24 months. However, most bridging loan finance lenders would prefer nothing more than a year.
Besides, taking short-term loans for more than 6 months could prove to be quite expensive. It’s advisable not to replace a bridging loan for a longer-term finance option simply because of the fast payout. Attempting this may lead to avoidable penalties,extra charges or default.
3. What are the requirements for bridging loans?
One of the major things a bridging loan lender will want to know is the purpose of the loan. That means it’s important to have a clear plan or reason for taking out such loans. Here’s the reason, bridging loans are usually paid back from incoming funds. For example, a homeowner who is adamant about buying a new home before selling the old one would have to consider two things.
The reasonable timing the old home can be sold at, and the amount that will be generated from this sale. There will also need to be some kind of security either on the old home or another commercial property/land. The homeowner will be required to provide an in-depth explanation on how soon they intend to redeem the loan.
In other cases, repayment can be funded from an expected large payout, money owed to you, or the proceeds from another investment. However, it’s crucial to always set up a plan B when taking out short-term loans to ensure your exit strategy is solid.
4. Who offers bridging loans
Due to the nature of these loans, most high-ranking banks may not readily offer bridging loans. It’s better to look to reliable lenders who specialize in short-term loans. After that, you will undergo a short yet thorough process from the loan application to due valuation, an underwriting process, and then the legal work.