Understanding Bridging Finance
Bridging finance, also referred to as "bridge loans" and
"bridging loans", have nothing at all to do with re-constructing
the London Bridge. Bridging finance is typically a short-term
loan that a business uses to supply cash for a real estate
transaction until permanent financing can be arranged.The word "bridge" conveys the fact that the loan is designed to get you
over a temporary obstacle. A typical use for a bridge loan is to
cover situations such as when a company needs to close on a new
office building before having sold their old one. They would use
the proceeds of the bridge loan to continue making payments on
the old building until it is sold.
Bridging finance almost always requires that you pledge some
sort of collateral as security against the loan. You could offer
up commercial or private real estate that you own,or are in the
process of buying, machinery and office equipment or even
existing inventory. If you have outstanding business and
personal credit, as well as an outstanding relationship with
your lender, you might be able to secure your bridge loans on
just a signature.
Because the need for bridging finance sometimes arises suddenly
and without warning, it is a good idea to establish a
relationship with a lender before the actual need arises. When
you do this you can arrange to be pre-approved for a specified
loan limit. Later, when the need suddenly arises, you won't have
to wade through all of the red tape. The typical term for a
bridge loan runs from a fortnight to as long as two years. Of
course, any terms can be negotiated and a motivated lender will
work hard to match your needs.
Since bridging finance usually lasts for a relatively short
period you may find that the interest rate you are being asked
to pay is slightly higher than a more conventional type of loan.
Lenders make their profit by charging interest across the life
of the loan. The shorter the loan period the less interest they
earn. As a result many lenders will often boost the rate by a
1/2 point or more. In general, the length of the loan, the
amount of risk that is present for the lender, the quality of
your credit history and the liquidity and value of your
collateral all are used to help determine the interest rate.
Your best bet for securing a bridge loan at the most favourable
rates and terms is to work with a qualified UK Commercial
Mortgage Broker who understands the ins and outs of bridge
loans. That way you can get your application in front of as many
lenders as possible and end up with several who are willing to
compete for your business.
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