Despite being a relatively niche form of finance, bridging loans have had a meteoric rise in popularity over recent years. This increase in use is especially prominent in the property development industry. Bridging loans have a series of key benefits that are particularly useful when purchasing property, whether it be for development and sale, or for use as a personal dwelling.

However, there are two main categories of bridging loan, with each being similar, but having certain decidedly different qualities. Regulated bridging loans are one of the two categories. In this article, we will discuss regulated bridging loans, how they work, and how you can obtain one to help fund the purchase of property. Let’s get started.

What is a regulated bridging loan?

Regulated bridging loans are one of the two main categories of bridging loans. It is a short-term form of secured loan, meaning it will require physical assets to be used as collateral. This means that a lender will place a lien on these assets. This allows lenders to seize collateral assets in the event the borrower defaults, constituting a noteworthy risk for a borrower with a rocky financial position. However, the risk posed by regulated bridging loans is comparatively lesser than certain other secured loans, as we will cover later.

Regulated bridging loans can be used for a wide array of purposes, though property development is one of the most common industries. In this industry, regulated bridging loans are used as a stopgap measure. True to their name, regulated bridging loans aim to bridge the gap between the purchase of an asset, in this case, property, and a more long-term form of finance. Typically, a regulated bridging loan will be repaid in one of two ways in this industry. If possible, the borrower may take out a long-term loan, such as a mortgage, and use it to repay the bridging loan. This is known as refinancing. The second method is to sell off an asset, oftentimes a different property in this case, and use the proceeds to repay the regulated bridging loan. Both options are effective and commonly used solutions.

Why are regulated bridging loans less risky?

One of the main downsides to using bridging finance of any kind is risk. The borrower must assume a higher degree of risk compared to unsecured forms of finance, as bridging loans require the use of collateral assets to secure the loan against. In the worst-case scenario of default, the borrower stands to lose any assets they have used as collateral, equalling the amount of debt that remains outstanding. However, although this is certainly a significant risk, it is a risk that fewer borrowers will assume with regulated bridging loans.

Unlike unregulated bridging loans, and some other forms of secured finance, regulated bridging loans have a stringent application process, one with a number of requirements that borrowers must meet. If they don’t, their odds of obtaining a regulated bridging loan are slim to none. While this might sound like an obstacle to potential borrowers, it aims to safeguard those in a rocky financial position; such borrowers will not be able to obtain a regulated bridging loan, therefore not exposing themselves to the aforementioned risks.

Bridging Loan Lenders

In addition to the above, there is another key reason why regulated bridging loans are less risky compared to their counterparts – the provider. Regulated bridging loans are offered by lenders that are viewed as more reliable in the financial industry. Banks and credit unions are chief among these reliable lenders. By taking out a regulated bridging loan with one of these lenders, you are much more likely to have a smooth process than if you were to take out an unregulated bridging loan from an unverified private lender. Furthermore, taking out a regulated bridging loan from a bank or other such lender offers certain protections. Regulated bridging loans are governed by the FCA (Financial Conduct Authority), an authority that aims to protect customers from unscrupulous lenders and lending practices. All of these factors combined make regulated bridging loans a fairly safe option.

What are the applications for a regulated bridging loan?

Regulated bridging loans have a wide array of applications, with them being particularly useful in the property development industry. Regulated bridging loans can be used to purchase properties from auction, seize rare opportunities quickly from the market, and develop properties to sell them later. In each of these cases, regulated bridging loans offer a series of advantages that make for the swift and easy raising of capital.

In addition to a range of commercial applications, regulated bridging loans can be used to great effect for private uses. Borrowers can use them to purchase a dwelling to live in, renovate existing properties, and they can be an excellent tool to avoid creating property chains. Whether it be for commercial use or private use, regulated bridging loans are an effective solution.

How to obtain a regulated bridging loan

Regulated bridging loans are straightforward to obtain, but the criteria can be strict in most cases. Borrowers can find regulated bridging loans on offer at banks, credit unions, and certain other trusted lending institutions. The application criteria will vary depending on your specific lender, but as we have mentioned, it is generally quite strict.. Borrowers will need to supply information on the value of their assets primarily, as the loan will be secured against these assets, along with proof of income and a business plan, if the purchase will be of a commercial nature. Credit history will also play a part, but it is not as important as other loan types. Assuming you meet the criteria your chosen lender sets, you can expect to obtain your loan in as little as a couple of days.

Wrapping up

Regulated bridging loans are the safer and more restrictive of the two types of bridging loan, but they are by no means less useful. Borrowers can access the strong advantages of bridging loans while not exposing themselves to as high a level of risk as with unregulated bridging loans, though this risk is not nil. As such, it is important that you carefully consider your financial situation and obtain professional advice before taking any action.