From buying a new property to paying an unexpected bill on time, there are numerous reasons why you may need bridging loans or finance. As a short-term loan, it can help to cover an immediate expense while you arrange for a longer-term solution.
As Sam Covington from Finbri explains “Bridging loans are multi-purpose. It’s a flexible finance solution that can solve a number of short-term financial situations. The most common use typically involves property transactions but we’ve also seen an increase in its use for probate and inheritance tax bill payments through to funding property conversions from commercial properties such as offices to dwellings.”
To help you decide whether this type of finance is the right option for you, here are the top reasons people use bridging loans.
To complete a property sale while waiting for your current one to sell
This is one of the most common reasons for applying for a bridging loan. It means that should you find yourself caught up in a property chain, the loan will enable you to still purchase your new property while waiting for the sale of your current home to complete.
As a bridging loan is a short-term finance arrangement, you can then repay the outstanding amount once you get the funds released from your property sale.
Purchasing land while waiting for planning permission
Another popular reason to use bridging finance is to purchase land you plan to redevelop. Mortgage companies are reluctant to lend on land that has not yet secured planning permission. But if you are sure that planning permission will be granted, then a bridging loan could be used to purchase the land. You then pay off the loan once you can secure a standard mortgage.
Poor credit history
Poor credit history can prevent a borrower from being approved for a standard loan. A bridging finance specialist may consider a loan application in these incidences. However, it is essential to note that you will be required to use your home, property, or commercial assets as collateral to guarantee the loan.
Buying property at auctions
With most standard mortgages requiring more than a month to complete, using a bridging loan is quicker to obtain the finance you need to buy a property at auction. You can then repay the bridging loan once your mortgage on the property is approved.
To obtain short-term working capital
Many businesses often require short-term working capital, for example, to cover a temporary drop in cash flow due to seasonal business patterns. A bridging loan could also be used to pay for stock or essential equipment purchases to ensure business continuity.
Settling a tax bill
A business could also use bridging finance to settle an unexpected tax bill that they would otherwise be unable to pay in time. Utilising a short-term bridging loan will ensure the bill is paid on time and avoid any late payment charges.
For developing an unliveable property
Our final most common reason to use bridging finance is if you want to buy a property to be renovated. Many lenders are unwilling to offer a mortgage if the building is uninhabitable or dilapidated. But with a shorter-term loan, you can complete the purchase and undertake any necessary construction work to make the property liveable. Once a mortgage is in place, you can repay the original bridging loan.
Whatever your reason for considering bridging finance, it is essential that you get the right advice so that you know what a bridging loan entails and can apply for the right loan for your needs.
