Bridging Finance is a short term funding option. Traditionally used to help complete the purchase of a property before the sale of an existing one it has now developed into a significant market for a wide variety of uses:
In property, for auction purchase; development; renovation and refurbishment.
For business, short term capital raising to meet a tax liability, business obligation, or to have the ability to move quickly where other forms of finance can take a longer time to arrange.
Bridging loans are either:
CLOSED - There is a definite date when the loan will be repaid.
OPEN - where there is no definite date at outset but an exit plan has been prepared. There will be date where the loan must be repaid by.
The main difference between a regular loan and a bridging loan is the time it takes to complete. As the term of the loan is short lenders base their underwriting mostly on the security being provided with the aid of a full valuation.
Rates for bridging finance are higher than for a standard mortgage and there are various additional fees charged including in some cases, exit fees. Rates can be in the order of 1.5% : 18% on an annualised basis.
Open bridging loans should not be effected unless there is a defined method to repay the loan on, or before, the term ends.
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