Fully understanding How Bridging finance Works

A short term property loan is a short term mortgage which is secured by your business. This is usually arranged by getting a mortgage on the new property, and taking out a second loan on the business being sold. A short term property loan almost always requires that you offer some sort of security for the mortgage. You could offer up commercial or private business that you own or other substantial collateral.

When looking into bridging finance you will come across the terms closed bridge and open bridge. In principle a closed bridge is where the 'exit route' or 'repayment source' is already arranged typically where agreements have been exchanged but the funds are not going to become available in time. On the other hand, an open bridging mortgage means that there is not a confirmed repayment method. As with most things financial, there is a grey area between the two. The most important things is to make sure you are arranging the right loan for your circumstances.

Being self employed or having an adverse credit history or CCJs need not be a problem. Bridging finance can even enable people who have an adverse credit history to build a track record before applying for a conventional mortgage.

Who uses Bridging finance

Short term property finance can typically be used for any genuine commercial purpose as a short-term measure. Because of the short-term nature of the mortgage however you should expect to pay more interest and higher fees than with a long term loan. In the business investment market bridging loans can be used for completing purchases quickly; for example, when business has been secured at auction. They can also be cost-effective for clients wishing to acquire business for refurbishment and re-sale.

How A bridging loan Works

Since short term property 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 mortgage. Short term property finance can be structured so that there is no need to make interest payments each month, the interest is effectively paid in advance with any over payments repaid when the loan is redeemed. A useful feature of bridging finance is that the persona applying for a loan can repay capital at any time, thus reducing the outstanding balance and future monthly instalments.

Some of the main purposes for which short term property finance can be used for:

• A bridging loan is being used more often for property development including site purchase, self-build projects and business conversions.
• A short term property loan can be used to purchase properties at auction thereby avoiding the problem of completing the purchase within 28 days. Bridging finance is often completed in days rather than weeks.
• Provide temporary a loan for the purchase of a 'defective' property, pending completion of repairs.
• To fund short-term commercial or residential renovations, particularly if the property is not habitable.
• Buy to Let investors negotiating discounts for quick completion.
• To avoid bankruptcy of other financial crisis by releasing the equity in a property

Because a bridging loan can be based on the Open Market Value of the property it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of a bridging loan to most business investors who are often willing to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the mortgage. Typically the term for short term property finance runs from a few days to as long as two years. Of course, any terms can be negotiated and a motivated bank will work hard to accommodate your needs.

Where to go for A bridging loan

There are now more a short term property loan lenders in the UK that there have ever been, so rates are coming down and terms are becoming more flexible. When dealing with a short term property finance broker do not be afraid of asking for the terms of the mortgage to be explained in plain English. You will often be quoted a broker fee and a banks arrangement fee. The interest rates and any repayment charges should be made clear at the outset The best way to secure a short term property loan at the most favourable rates and terms is to work with a UK Commercial mortgage Broker who understands the ins and outs of bridge loan. A short term property loan can either be based on the limited sale value of a business or the Open Market Value (OMV). The inconsistency is simply down to the preference of an individual lender, a specialist commercial broker will be well aware of the inadequacy and should ensure that this is made clear to the client.