Bridging finance is a tool used by property developers to purchase property. It is an exceedingly flexible form of finance, able to be used to buy everything from warehouses to dwellings. Moreover, bridging finance prizes speed above all else. It is a type of loan that can be obtained quickly, often within days of submitting an application. These qualities are greatly appreciated in an industry as dynamic as property development, where opportunities can come and go in the blink of an eye.
Though bridging finance is already used to great effect in the purchasing of property, is it as useful in the purchasing of land? In this article, we will answer this question, discussing what land bridging finance is, how it works, and the advantages and disadvantages of using it.
What is land bridging finance?
Land bridging finance is exactly as it sounds – it is a form of bridging finance geared towards purchasing and developing land. It works much the same way as it does when purchasing property; you can gain access to money quite quickly and use it to purchase a variety of land, though at a higher cost compared to other types of finance.
How does land bridging finance work?
Using bridging finance to purchase land is a fairly straightforward and convenient process. It is used as a short-term solution, providing cash quickly, but only for a short time. The length of the average bridging loan is usually around 12 months, though a term can be anywhere from 1-24 months long. In some edge cases, bridging loans can exceed this upper limit, though this is highly dependent on the lender.
Once you have decided on a lender, there are a few things you must do first before the cash lands in your account. First, you will need the usual identification documents along with an application. Next, you will need to supply information about the land you intend to purchase. Bridging loans are a form of secured loan, using assets as collateral to reduce the risk assumed by the lender. The land being purchased can be used as collateral for this loan, provided the lender is satisfied with the details provided. In addition to this, you should include details about your plan for the land, how you intend to develop it, and so on. Lastly, providing information about your existing portfolio and credit score will improve your chances of a successful application. Having a large deposit wouldn’t go amiss either.
Your application will likely be successful if you have a good investment opportunity and details that indicate you are a low-risk investment. The amount you will receive is tied to the assets you use as collateral; low-value assets will result in a small loan, while high-value assets will grant you a hefty loan indeed. Due to this, you are as limited as your assets, allowing you to purchase almost anything at almost any price – provided you have the assets to back it up.
Is planning permission a requirement for land bridging finance?
While certainly an important document to have, planning permission isn’t necessarily what will determine the results of your application. That said, it can have a notable impact on your chances of getting your loan application approved. Planning permission is nice to have for any property development project, but for land purchases, it is quite important indeed. A lender considering a loan application for a land purchase without planning permission will view it as high risk. If the borrower cannot obtain planning permission after the loan has been given, then the likelihood of the lender receiving their investment back is slim.
Advantages and disadvantages of using land bridging finance
As with any method of raising capital, land bridging finance has its advantages and disadvantages. Before making the decision to use it or another method, you should carefully consider these advantages and disadvantages, comparing them to your situation and how they would have an impact.
Advantages of land bridging finance
Land bridging finance has a range of advantages. The most important are:
- Speed – Bridging finance of any stripe prizes speed above all else. Land bridging finance follows this example, aiming to get money into the accounts of those that need it in as little time as possible. If you have all the necessary paperwork ready before your application, you can gain access to the loan within two days, sometimes even sooner.
- Flexibility – Speed dovetails with bridging finance’s second advantage, flexibility. A bridging loan can be obtained even if you have a poor credit history, provided you have a good plan in place and the assets to use as collateral. You won’t even need to provide evidence of a stable income. Moreover, bridging finance can be used to purchase pretty much anything. If you have land you want to buy, or a project you want to start on a plot, you can do it with bridging finance.
Disadvantages of land bridging finance
Land bridging finance also has notable disadvantages. The most important are:
- Risk – The most significant disadvantage to using land bridging finance is risk. In order to take out a loan of this type, you need to put physical assets up as security. This forces you to assume some considerable risk, as these assets will be seized and sold by the lender to recover their money, if you cannot repay. As such, you should only use land bridging finance if you know you can pay back the loan.
- Cost – Bridging finance of any kind is often more expensive than many alternatives. While this cost can be limited by prompt repayment, it can quickly add up to be quite expensive if the loan repayment term is lengthy.
Conclusion
All things considered, land bridging finance is an excellent way to fund your land purchases. It is an incredibly flexible form of finance, able to lend to almost any project provided they are within the realm of possibility. That said, it isn’t a one-size-fits-all solution, being quite useful for some projects and less so for others. You should ensure you weigh up the advantages and disadvantages of land bridging finance against your situation, considering other alternatives too. Professional advice wouldn’t go amiss, and can greatly help you settle on what’s best for you and your next development project.