Bridging loans are a highly effective, if a bit niche, form of finance. They offer borrowers quick access to capital at short notice, and can be about as flexible as needed. For these reasons and more, it’s no wonder that bridging loans have seen an uptick in use, especially in the highly competitive property development industry. Borrowers can utilise bridging finance to seize upon rare opportunities in the market, whether it be to obtain an excellent development opportunity, or to purchase a dream home. Whatever the case, bridging loans have more than proven their effectiveness.
While the efficacy of bridging loans is now much more commonly known, what is less widespread is where you can find one. Traditional lenders aren’t typically as eager to provide bridging finance as they are a mortgage or other such service, making bridging loans harder to come by for first-time borrowers. This begs the question – where can you get a bridging loan?
In this guide, we will answer this question, discuss the various bridging loan providers and, detail what each can offer you. Let’s get started.
What is a bridging loan?
A bridging loan is a form of secured finance, one that prioritises speed and flexibility above all else. They are short in nature, typically lasting no more than 12 months at the latest. While this may sound quite restrictive, this is completely intentional; bridging loans are intended to “bridge” the gap between a purchase and a long-term form of finance. In other words, bridging loans are not an end in and of themselves, but instead, aim to tide you over until you can find a more permanent solution. For property purchasing, this is an ideal situation.
However, although bridging loans are exceedingly effective in some areas, they are not completely without issue. As they are a form of secured finance, bridging loans will require the borrower to use physical assets of appropriate value as collateral. To ensure these assets are of sufficient value, borrowers will be required to bring in a professional valuer to assess the value of assets intended for use as collateral. Assuming the valuer appraises these assets to be of sufficient value for the lender, you may use them as collateral. While this only constitutes a small inconvenience and expense, there is a further disadvantage – risk. As bridging loans require collateral, the lender will place a lien on these assets. This entitles them to seize said assets in the event the borrower defaults. As such, bridging loans can pose a considerable risk for borrowers in an unstable financial position.
Also Read: Is It Possible To Get a Bridging Loan With No Deposit?
Who offers bridging loans?
Although bridging loans are an effective method of raising capital for a variety of uses, they are still relatively niche. As such, there are fewer providers than for more traditional forms of finance, such as a mortgage or personal loans. That said, once you know where to look, it’s as simple as obtaining any other loan.
Private bridging loan lenders
When searching for a bridging loan, the first place you should look is private loan providers. There are a number of private bridging loan lenders, with some operating independently, and others working with a bridging loan hub. Both options have their advantages, but there are a couple of noteworthy differences.
Private bridging loan lenders that operate independently of any organisation are relatively common to find, but can vary widely in terms of what they offer. Some private lenders will offer loans with less strict application criteria, allowing borrowers in a weaker financial position access to loans they would not ordinarily be eligible for. Others will have stricter application criteria, but will offer loans of a higher value, assuming borrowers have assets of sufficient value to secure the loan against.
Regardless of the services offered by a particular private bridging loan lender, it is vital to properly vet a lender before signing any loan agreements. Although many private lenders are perfectly safe and above board, they are not nearly as well-regulated as traditional finance providers. This means borrowers are more vulnerable to risk, particularly if they neglect to look into their chosen lender. They could fall victim to a scam, and have little to no legal recourse available should the worst happen.
This risk can be mitigated quite effectively by borrowing from a bridging loan hub. In short, a bridging loan hub will bring borrowers and lenders together based on their needs. This serves two key purposes; it reduces the risk that both borrowers and lenders expose themselves to, while also better ensuring borrowers find an appropriate lender. This can make your task of securing finance both safer and easier.
Traditional loan providers
In addition to private lenders, bridging loans can be obtained somewhat surprisingly from traditional loan providers, such as banks or credit unions. This can be quite unexpected for some, as many banks will offer bridging loan services upon request, but will not openly market the service. This is as a result of the 2008 financial crash, which saw banks divert resources from more niche products, such as bridging loans, to well-established and trusted services. As such, mortgages and personal loans were heavily marketed, while bridging loans fell by the wayside.
Despite not marketing the service, banks and credit unions are more than willing to provide bridging loan services to those that meet the requirements. These requirements are typically quite strict compared to those stated by private lenders. While it can be obstructive, these requirements ensure that borrowers in a difficult position cannot make their finances worse by taking on a bridging loan and failing to make repayments, resulting in the seizure of their assets. Furthermore, taking out loans from banks or credit unions afford borrowers certain protections that do not extend to the private lending industry. If you are eager to obtain a bridging loan, but do not want to expose yourself to the risks associated with private lenders, consider checking to see if your bank offers the service.
Wrapping up
Bridging loans are a fairly niche form of finance, but they can still be easy to obtain if you know where to look. Private bridging loan lenders are easy to find, but they do come with a higher level of risk for the borrower, with buyer-beware certainly being the motto of the industry. Alternatively, banks provide a similar service with less risk faced by the borrower, though they aren’t usually transparent about what they offer. In either case, the more research you do, the better the outcome will be for you.