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To understand alternatives to a bridging loan, we must get to know the features of a bridging loan and how it works.
A bridging loan is short term finance to bridge the gap temporarily on a property deal. So for example, if you want to move to a new property, you can obtain a bridging loan to get the money quickly for the finance of the new home. Once your existing home sells you repay the loan.
Another typical example would be to buy a property at an auction with a bridging loan, and when you refinance the property, you pay back the loan.
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It will depend on the reason you want short term finance. Bridging loans are flexible and unique, and there are many uses and few alternatives. There may be alternatives in specific scenarios, for example, as a property developer, you have the option of finding development finance, but even with that, it depends at what stage you are in the project.
Bridging loans are specialised finance. High street lenders do not provide bridging loans. They did offer them in the past, but after the economic crash in 2007/08, the banks stopped offering them.
Hard money lenders and private funds offer bridging finance, and some people are not comfortable to approach such institutions.
– Interest rates could see you pay more than with a standard mortgage
– Not keeping up with repayments can see your home at risk
– You’ll have to account for paying fees as well as the repayment costs
– Some bridging loans are not FCA regulated, so this can put you at risk
Looking for alternatives that you can use to gain financing in a way that is not a bridging loan is essential because these can often work out to be expensive. These are some of the best alternatives you should consider right now:
Of course, this would be the most appealing option because it would mean you wouldn’t have to take out any loan, which would expect no repayments and no concerns about defaulting, not to mention no interest rates to contend with. Naturally, this is also the most challenging alternative option, as it means having to come up with a large sum of money quickly.
Some banks offer a secured loan on a short term basis. There are specific criteria for this loan, the LTV must be low, and you must be banking with the bank, for example.
Asset refinancing is one of the best alternative options for businesses who are looking to buy commercial property. Companies that have substantial equipment and machinery will be able to make great use of asset refinancing as a cheaper and more accessible alternative to bridge loans.
Again, this is a good one for commercial businesses who are looking to secure capital as an alternative to bridging loans. It happens when companies sell their invoices to a third party for a percentage of their value. This is perfect for companies who have to deal with slow invoice payments, and who are looking to buy a commercial property without having to take out a bridging loan.
Development finance is also short term finance, and as the name projects, it works for development projects. It is a cheaper alternative, but there are limitations compared to bridging loans.
Bridging loans are a unique form of finance, and there are few alternatives to replace them. In specific circumstances, you can find an option, but in many cases bridging loans would be the best fit.
The flexibility you get with a bridging loan you cannot get with any other form of finance. You need to understand how to use bridging loans correctly. It is always advisable to discuss things with a professional.