Top Bridging Loan Questions

Bridge loans, also known as bridging loans, help you to literally ‘bridge the gap’ between times when you need finance, but it isn’t readily available to you. Individuals, companies, and even corporations utilise bridge loans to provide funds for short periods. 

Bridging loans can help homeowners purchase a new home while they wait for their current one to sell. Individuals can use the equity from their existing home for the down payment on the purchase of a new one. The receipt of a bridging loan gives homeowners some extra time and much-needed peace of mind during the often stressful process of finding somewhere to live.

How does a bridging loan work?

Lenders can offer bridging loans for two weeks to two years, depending on the needs of the borrower. 

There are two types of bridging loan:

Closed bridge loans

With this kind of loan, there is a fixed date for repayment. Closed bridge loans are typical for homeowners who need financial assistance between the date of selling their home and purchasing their new one. 

Open bridge loans

Open bridging loans don’t have a fixed date to repay. However, lenders typically require an exact repayment schedule, and the debt is likely to be due within a year. The bridging loan is dependent on a property purchase. In that case, the borrower will need to provide evidence of the exchange and intent to buy a new property.

How much does a bridging loan cost?

Bridging loans are priced monthly instead of annually because they are designed to be taken out for short periods only. Like all loans, some bridging loans can be expensive, and others are more reasonable. Fees are usually between 0.5% and 2% per month, which makes them more costly than a long-term loan like a mortgage.

There are also set-up fees, which is around 2% of your desired loan amount. Experts recommend bridging loans if you are confident that you will only need the money for a short amount of time.  

Can you get a bridging loan with bad credit?

Yes, you can get a bridge loan with a sub-par credit score. Another option in the case of bad credit is a non-status loan. A non-status loan doesn’t take into account the credentials of the borrower. Instead, they see the value in being involved in the overall purpose of the loan. Lenders use non-status loans to provide funding to developers. Non-status loans are much less common, and only specific lenders are willing to give them. They are suitable for when funds need to be released very quickly.

In the instance of non-status loan, the lender will consider the GDV (Gross Development Value) of the project in question instead of the credit, assets or cash flow of the borrower. GDV is a formula which provides a way to assess the financial value of a property development project. It takes into account a developer’s potential profit and the overall viability of a project. 

Where can you get a bridging loan?

The place you’d get a bridging loan depends on the purpose of the loan. Some are to buy a property at auction, pay for renovation work, buy land for development or to purchase an inhabitable property. Businesses can also use bridge loans to buy stock or pay for machinery/equipment. 

Friends capital offers bridge loans with market-leading rates. Please speak to one of our experts now to find out how we can help you.