Bridging loans are a type of short-term finance which are designed to meet very specific needs. More expensive than other types of borrowing, they can help to resolve a temporary financial shortfall.
Some of the situations that bridging loans can be used for include buying a property at auction or covering the purchase of a new property while the sale of your existing home goes through. The need for a bridging loan can therefore be quite pressing, but how long should you expect to wait for it all to go through?
Here’s a look at what you need to know.
Is a bridging loan right for me?
Before you apply for a bridging loan it’s important that you’re very sure this type of finance is right for you. The costs can rack up very quickly and it’s one of the most expensive types of borrowing, particularly if you need it for anything other than very short-term.
There have been instances in the past where financial advisors have advocated a bridging loan as a type of creative solution to house purchasing. However, it should only ever be used to tide you over briefly until funds which are anticipated, become available. When used for anything else there is a risk that it could allow you to make a purchase that you can’t really afford, and lead to difficulties with repayments.
Therefore, before proceeding with a bridging loan you will need what’s known as an exit strategy, and a back-up plan. This means you know how and where you will get the money to pay off the bridging loan, and that you have a second source of revenue in case your original plan fails.
Will it take a long time?
In many cases, bridging finance is a solution that enables an individual to move swiftly and take advantage of a market situation, such as at an auction. Bridging finance is also useful if you don’t want to lose a property purchase but your own buyer has pulled out.
Bridging loans don’t always have to be used for situations which are urgent. If you are renovating a property and need access to a large amount of cash for a very short period of time before you re-sell, a bridging loan may be the answer. In these cases, it’s not desperate to receive the cash within a matter of hours.
Depending on various factors, a bridging loan can take anything from 72 hours to a couple of weeks to complete. It’s not the quickest type of finance to get approved due to its complexity, but lenders are typically expert and very agile in getting the information they need.
What factors make a difference in the speed of the loan?
In some cases, it’s just down to the particular lender’s own practices and resources but there are often external factors which contribute to.
The credit rating of the borrower is just one of the aspects which is considered. The better your credit rating is, the easier you are likely to find it to qualify for a bridging loan. However, other aspects are equally as important such as what your exit strategy is and the strength of the asset you want to borrow against. How much cash you are contributing to the project from your own pocket will also be taken into account.
If the lender can see that you have a good credit rating, the asset is valuable and secure and that your plans to clear the bridging loan are strong, you could have the money in your account very quickly.
To discuss bridging loans in more detail or to make an application, call Loans Warehouse today on 01923 678 870.