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Why do I need a Bridging Loan?
First Charge and Second Charge Bridging Loans
What is a Bridging Loan?
A bridging loan (or ‘bridge loan’) is a loan which allows you to borrow money for a short period. This is usually up to one year. It can help to ‘bridge the gap’ to secure funding to buy a new property quickly. For example, bridging loans can help homeowners purchase a new home while they wait for their current one to sell. In this situation, your existing home will be used as collateral.
Why do I need a Bridging Loan?
Buying a Property – Purchase a property quickly
Property Auction – Buying property at an auction
Property Development – Renovating or remodeling a home
Business Purchase – Purchase a new business with a shortfall in funding
Business Working Capital
Pay a Large Tax Bill
With Friends Capital, you can borrow up to £10 million to secure your purchase. Bridging loans are a reliable, short term tool when you know that alternative finance will soon be available to repay the Bridging Loan. Get in touch today to find out how much you could borrow, and how quickly our lenders could get it to you.
Why Choose a Bridging Loan?
Bridging loans are a perfect way to raise large amounts of finance fast. You can use a bridging loan to:
- Prevent a property chain from breaking: There may be several homeowners in a chain looking to purchase their new homes. If a buyer pulls out, a bridging loan can close the loop so the sales go ahead. It is ideal if you can secure another financing option to pay it off further down the line. If you are part of a property chain, and the deal on the property you’re selling is at risk of falling through, you can secure the new property you want to purchase. A bridging loan will allow you to raise finance fast and secure the new property whilst you sell your current property.
- Make a purchase at a property auction: You can purchase a property at a property auction quickly with a bridging loan. After making a winning bid at auction typically a 10% deposit is paid that day, and the rest of the agreed purchase price is required within 28 days. Often the purchase would need to be completed quickly. You can also receive a bridging loan decision in principal beforehand, so when you visit the auction you have the security of the finance being readily available if you need it, with no obligation.
- Refurbishment Finance: Property can often be considered to be unsuitable for mortgage purposes due to it being in a poor condition. Sometimes, with the case of residential property and buy to let mortgages, it may be just because the property lacks a kitchen or bathroom. Bridging finance can be secured against property that other lenders consider to be unsuitable. This is very useful for property developers and landlords who want to buy a property to restore and then sell, or refinance with a buy to let mortgage, keeping it to rent out.
- Solve business short term cash flow problems: There are many reason why a business may have issues with cash flow, or simply need finance to purchase equipment or property. A bridging loan can help.
- Inheritance tax and probate issues: Sometimes funds are required when dealing with inheritance and probate issues. There are many reasons including having to release charges on property, pay tax and other bills, and also to pay off other beneficiaries.
- Property Development: Bridging loans can be used to raise the funds required to finance property developments. You can use a bridging loan to purchase a dream kitchen or bathroom, or to finance a house extension.
Advantages of a Bridging Loan
Fast to arrange – quick access to finance
Flexible lending – secured lending means no lengthy checks and bad credit accepted
No excessive fees – whilst bridging loans have higher interest rates, these rates are paid back fast and are controlled
Extensive potential – a bridging loan can be used for a range of different purposes often with no questions asked
Types of Bridging Loans
When you start looking into bridging loans, you will notice some terms and phrases that describe the different types. Examples of bridging loans include:
- Closed-bridge or open-bridge loans
- First charge and second charge loans
- Fixed or variable rate bridging loans
You can apply for a bridge loan that is either a closed or open-bridge loan. The type you choose will depend on whether you know a date for paying it back. If there is a specific date that you will repay the finance, you will have a closed-bridge loan. So if you have a buyer for your house with a completion date, this will allow you to buy the new house before that date.
Open-bridge loans are an option if you don’t know exactly when you will be paying it off. It is a useful option if you are buying a new house before having a buyer for your current one. You can use the loan to make sure you don’t miss out on the home you want. If you are considering renovating your house before putting it on the market, an open-bridge loan will give you the money you need.
First Charge and Second Charge Bridging Loans
When you get a bridging loan, it will be either a first charge or a second charge loan. These terms refer to who is the priority for repayment in the case of a defaulted loan. If you have financing to buy a new house with a mortgage on an existing home, that is a first charge loan on your old house. The mortgage will be the priority for repayment if the house is repossessed.
Or you can use the bridging loan to clear the old mortgage making it a first-charge loan. If your new house is the security on the bridging loan, you have a first-charge bridging loan. The paperwork relating to the financing will show you what type of bridging loan you are getting. It will also show which property, or properties, are security for the loan. Any security for the loan is at risk if repayments are not met.
Two Steps to contacting Friends Capital
Step 1
Either call us, email us or request a call back using our call back submission form.
Step 2
One of our friendly advisors will either call you back within 24 hours (usually the same working day), or will take details from you in order to best deal with your situation.
When you speak with us, we will take a ‘fact find’. At this stage we take basic details about your situation. We will then search the whole of the market and find you the best deal available.
If you are happy with the deal that we offer, we will then contact the lender for you and get you what is called a ‘decision in principal’.
If you’re happy with the decision in principal then we will secure this deal for you and deal with the application for you on your behalf.