Bridging finance: cash in hand when you need
it most
Bridging
loans are short-term loans acquired to meet a temporary cash flow needs.
One of the most common reasons for using bridging finance is to cover
the time gap between purchasing a new home and closing the sale of the
current home; it is in this situation that most typical consumers first
encounter these types of loans. They are often used by businesses to allow
the purchase of goods or property when cash flow would otherwise not allow
this.
Generally, bridging loans are not issued for longer than a twelve month
period, although some three-year contracts have been reported. By their
very nature, these loans are only intended to meet an interim need and
not a long-term one. Most bridging loans are closed, with a specific date
for repayment. Others are open-ended, accruing interest until they are
repaid, but generally specifying repayment by the end of a year’s time.
Bridging
finance usually carries a higher interest rate than other loans, and
in all cases collateral is required to secure the loan.
Businesses often need bridging loans to meet short-term financial needs.
For instance, a company may have the opportunity to buy materials cheaply,
but lack the ready cash to purchase them immediately. Bridging loans can
provide the needed cash to make the purchase, and then may be repaid with
the proceeds gained by selling these materials at retail. Property developers
may also use bridging finance to acquire real estate for building projects.
Until the necessary permits and legal paperwork is completed, the developer
may not be eligible for traditional loans; in these cases, bridging loans
are necessary to cover the gap between the purchase of the property and
the time when a lower-interest construction loan is available from a mortgage
lender.
Bridging finance requires collateral, usually in the form of
real estate. In some cases other forms of collateral are acceptable, such
as business equipment, vehicles, or stocks and bonds. The amount of the
bridging loan cannot exceed the value of the collateral. Lenders will
usually not extend a bridging loan for more than eighty percent of the
value of real estate, and for other forms of collateral the percentage
will be significantly lower. Since the lender assumes greater risks with
bridging finance, the interest rate will be higher than other collateralised
loans. Additionally, because of this higher risk, traditional banks generally
do not offer bridging loans; borrowers must obtain these loans from other
lending institutions.
One great advantage
of bridging finance is the rapid availability of funds. In some cases
bridge loans can be finalised within seventy-two hours, a sharp contrast
to the weeks or months that a traditional mortgage or loan application
may require. Since the loan is intended to be repaid very quickly, the
higher interest charges do not usually create an undue financial strain
on the borrower. For businesses, contractors, and homeowners, bridging
loans can provide a much-needed infusion of cash when it is needed most.
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My
business needed finace in 48 hours, I phoned Wednesday afterenoon, and
by Friday 2 pm the funds were in my account. Thank you again. (Jason S.)
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