What is Bridging Finance and when might you need it?
What is bridging finance?
Bridging finance is a term that most of us will have heard, but how many of us really understand what it is and how it works? How is it different to a short-term loan? When it is it useful?
Bridging loans are a form of short-term finance, which can be useful for companies (or individuals) who need a specific amount of cash, for a limited time (and often for a specific purpose). A bridging loan can help to ‘bridge the gap’ in cases such as buying a new property before selling the old one.
What are the main types of Bridging Loans?
Closed bridging finance - You need to know exactly how the loan will be paid back –right from the start, referred to as the exit strategy. With the loans we do at CSBF we tend to offer a lower interest rate on closed bridging loans as there is a lower risk of us not being paid back and they tend to be shorter term.
Open bridging finance - Open bridging loans are when there is no clear exit strategy. Even though there is a date agreed, how the owed money will be paid back might not be finalised. As lenders because view this as riskier, interest rates are usually higher.
What can I expect it to cost me?
The costs, and the amounts borrowed, can vary depending on the specifics of each loan (time, risk, etc) and can range between 0.5% and 1.5% per month. There may also be other fees depending on the circumstances.
What are the advantages?
• You will receive your money quickly because with these type of short-term loans lenders understands the urgency.
• You can borrow money on one asset in order to purchase / fund another asset.
• You might value the flexibility to repay the loan, within weeks or months at your
choice, if you do not want to (or can’t) take out a traditional long term mortgage.
What are the drawbacks?
• The loan is usually secured against a property, so you risk losing ownership if you can’t repay as with traditional mortgages.
• The high interest rates that come with the loan – this is because you pay for the flexibility and swift payment which is based on the shorter payment terms.
• You may be charged a number of fees such as lender’s arrangement, exit, surveyor’s and legal fees, so it can be a costly option.
How can CSBF capital partners help?
• Enabling faster access to funds as opposed to a six-month wait from traditional banks
• Common sense approach to underwriting, and competitive pricing
• The types of finance we provide include: auction, development exit, capital rising, refurbishment finance
• We are privately owned, so we are able to fast-track the entire process but still offer sensible fees
• For some loans we offer to waive the valuation fee
• Providing in principal decisions within one day and funds can be drawn down within days from initial enquiry
Make sure that you are speaking to a lender that understands your project and can tailor the financial product to make sense for your project. We find that often our financial products are attractive to clients because we are able to be more flexible in our terms, and faster access to funds than the traditional banks who are constrained by their systems and requirements. Contact CSBF for more information.
Author: CSBF Capital Partners
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