The short-term capital made available through bridging loans can be used for a variety of commercial purposes. From housing developments to contract fulfilment, short term loans that allow borrowers to only repay capital and interest at the end of the project can have a hugely positive cashflow impact.

Because of the wide-ranging reasons behind a borrowers need for bridging finance, different types of bridging loan exist, each tailored to the borrowers’ specific requirements.

In this guide Seek Finance discusses the most frequently asked questions revolving around the types of bridging loans available.

What is classed as a light refurbishment bridge?

Different lenders have different definitions of what constitutes a light refurbishment but broadly speaking, this applies to a project that does not require any structural change to the property or the requirement for planning permission.

What is classed as a heavy refurbishment bridge?

Unlike light refurbishment, a heavy refurbishment will normally involve structural changes to a property and in most cases, planning permission (unless covered under PDRs) will be required.

What is a non-regulated bridge?

Typically, this applies to an investment property which you have never lived in and have no intention of doing so. This can be a residential or commercial property and in some cases land. This type of loan will normally have a maximum term of 24 months but in some cases, this can be increased up to 36 months.

What is a closed bridge?

A closed bridging loan is one that is taken out when there is a guaranteed exit date, or date when the loan will be repaid. An example of a guaranteed exit date would be the date of completion for a property sale having exchanged contracts. When taking out a bridging loan under these circumstances a guaranteed exit date can be provided. This type of bridging loan is obviously less risky to both the lender and the borrower, and this is reflected in the lending rates and charges.

What is an open bridge?

An open bridging loan does not have a guaranteed exit date and therefore a borrower can only indicate to the lender or guess how long the loan will be required. An example of an open bridging loan would be when funds are to be cleared following the sale of a property, but at the time of taking out the loan there are no confirmed buyer. Open bridging loans are a riskier proposition for both the lender, who does not know when to expect repayment of the loan, and also the borrower who does not know how long or how many monthly interest payments they will have to pay.

What is meant by an exit strategy?

This refers to a borrower’s plan to repay their loan. Typically, this will be by refinancing on to a longer-term loan agreement, selling the security property or using other personal funds when they become available such as inheritance. In most cases a lender will want evidence of a borrower’s proposed exit strategy prior to the release of funds.

What is meant by Security?

Security is the term used for whatever land or property the lender secures the bridging loan charge against.

What is meant by additional security?

This refers to additional property that is offered to a lender to increase the security and lower the total loan to value (LTV) of a loan. Additional security to help recover their funds will generally lead to better lending terms being offered to the borrower.

What if my property already has a mortgage, can I still use this as security?

The bridging loan facilities can be secured as first or second charges, and in some circumstances even third charges. Whether a lender will want to do this is dependent on if there is still sufficient equity in the property after other lenders have recovered their funds first.

What type of security can be used for a bridging loan?

We have bridging loans that can be secured on residential property, commercial property, building plots and land.