Bridging loans can be used for a wide variety of different things, property development being one of them. When it comes to using a bridging loan, there are advantages and disadvantages to consider, so it’s best to look at all options in detail, to decide what the best available option is.
If you require a short-term financial solution, then bridging loans are perfect for just that.
Are bridging loans a good idea for property development?, the answer is yes. They are very popular in this market due to them being quick, short-term and easy to get. However, depending on your situation, experience and how much money is needed, it might be a good idea to look into other financial solutions, to make sure you find the right one for you.
Always make sure you’ve done your research on the lender and find a good deal for the bridging loan. If you’re a property developer and in need of a quick and short-term financial solution, then this will be the best option for you.
What Is A Bridging Loan?
A bridging loan is a short-term, financial solution usually paid back within two weeks- 12 months of when the loan was first taken out. They are a great option for those needing financial help quickly for something but knowing that they can pay it back within the time agreed with the lender.
Along with paying the loan back, additional fees and interest rates are charged on top of the loan as well. The costs and additional fees will depend on the lender.
The types of fees that may be added onto the total cost include valuation fees, legal fees and arrangement fees. Interest rates range from 0.40% to 1.50% monthly; however, the interest can be deferred and paid back at the end of repayment instead of monthly.
When taking a bridging loan out, security and exit strategy will be needed, which will be assessed by the lender. Security is the equity in assets that can be used, for example, a property.
The lender will use this as their security in case anything was to happen, and the loan couldn’t be paid back. Lenders will usually offer up to 75% of the security you have.
The exit strategy is how you plan to pay the loan back. For example, it might be that you have bought a property to renovate and then sell again, so the money from the sale can be used to help pay the loan back.
The bridging loan process is quick and simple, all you need to do is find the right lender, apply for one, go through an assessment process, agree on terms with the lender and then the money can be with you in as little as seven days.
What Can A Bridging Loan Be Used For?
Bridging loans can be used for a number of different reasons, including:
- Buying a property
- Property development
- Business ventures and investments
- Inheritance tax
- Buying a property at auction
- Cash flow for businesses
These are just some of the ways that bridging loans are used, and the amount you can borrow will depend on what it is needed for and the lender.
Advantages Of Bridging Loans
When it comes to bridging loans, it can be hard to decide whether it’s the best route to go down. Below are some of the advantages to bridging loans that might help make that final decision:
- Quick and easy process
- Prompt to arrange and get payment
- Flexible lending
- Any property can be used as security
- Short-term and can be paid back quickly, so you don’t have a loan that goes on for years.
Bridging Loans For Property Development
One of the main uses of bridging loans is that it is used for property development.
Landlords and property developers commonly use bridging loans for property development as they can provide them with money quickly, which is used on the projects and then once complete, the property gets sold. The money from the sale can then be used to pay the loan off.
Bridging loans for property development are a great way to get financial support quickly, that can be used for the development project. With this type of loan, they’re short-term and quick and easy to get, so you can have the money within days of applying for one.
Once the project is complete, the sale of the project then goes towards paying the loan off.
When in the property development market, it can be useful to have some extra, financial support to contribute towards it and get the job done quicker. Bridging loans for property development, are there to be used to get the project going and get it finished sooner. It is resulting in the property going up for sale sooner and selling quicker.
Some things to think about when it comes to bridging loans for property development are the downsides to it. You need to make sure you have a definite exit strategy plan in place along with security in assets to get approved.
Other things to think about are the interest rates with bridging loans, additional fees and what might happen if the property takes a long time to sell. The interest rates and other costs will add more money onto to the end payment, so make sure when looking at the loan, you get clear information on this and how much extra it will cost.
This way, you can plan and know if you’ll be able to afford the full and final payment. Along with this and property development, you’re making a big investment and using a lot of money towards something that will only make a profit if it sells.
Be sure that you can guarantee a sale at the end of it, to make sure you’re secured for paying the loan back.