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Bridging Loans have continued to be the number one choice for individuals who are tight on cash, and the market has grown from £1b – £8b in just a decade.
Bridging loans can be an extremely viable solution to bridge the financial gap, and the best solution to ensure that individuals can complete their transaction as soon as they need. However, there are certain things need to be taken into account when applying for a bridging loan.
Have Bad Credit? Require a Bridging Loan? We Can Help. Call 020 3393 9277
Poor Credit tends to be one of the most crucial aspects for obtaining traditional mortgages, predominantly because credit rating is an integral factor that mirrors the capability of the borrower to pay back the loan.
However, bridging loans work differently. In the majority of cases, the main factor to a lender is the security put up for a bridging loan.
A Bridging Loan is different from a standard mortgage, and therefore, credit rating comes secondary to any other relevant factor that is taken into account when applying for a Bridging Loan.
Let us teach you how to get a Bridging Loan, despite Poor Credit, or an average credit rating.
Firstly, you need to understand the rationale behind Credit Rating not being the primary determinant of attainment of Bridging Loans. As far as bridging loans are concerned, the most crucial factor is the security against the loan for the lender. The security will cover the loan, which is typically 70% – 75% of the value.
This means that the overall risk profile for bridging loans is considerably lower than that of other lending purposes, which include mortgages, bank loans, and credit cards.
Additionally, Bridging Loans are mostly obtained with a clear-cut exit strategy that should be in place to reflect how the lender is going to receive their money back.
Therefore, in this case, it becomes quite significant to have a proper exit strategy, which can act as a guarantee for the lender, that their finances are secure, and they will be paid regardless.
The importance of having an attractive exit strategy is two-fold. Firstly, it shows that the borrower of the loan has a proper contingency plan in place in case of any unprecedented events that might deter the final payment in this regard.
Secondly, having an exit strategy is also helpful because it mirrors the overall capability of the borrower to plan resource distribution in an effective manner, which can make sure that the lender gets paid in full and on time.
Therefore, amidst the options that are available to the loan providers, the majority of bridging loan providers do not consider credit rating as an important factor.
Credit scores tend to be a small factor in the overall decision-making process.
However, in the case where an individual has a poor credit rating, because of which they are unable to obtain bridging loan finance, there is an option to opt for a non-status bridging loan.
Non-status bridging finance is the terminology that is used for a loan where the lender considers the property deal as the impetus for the loan.
This facilitates relatively fast funding, without the need for credit, the need for credit checks, or subsequent income verifications for loan approval.
Alternatively, in the case where the credit rating is not at par, another option that is available to hopeful borrowers is to use a guarantor.
A guarantor is a third party member who signs on behalf of the borrower. This acts as a guarantee for the borrower to pay back.
The main advantage of a third person guarantor is the fact that it acts as a security blanket, for the investor, in the case where credit rating is not that favourable.
Another very useful strategy in this regard is to ensure that individuals and businesses can create a proper business plan beforehand, with the relevant paperwork that is required.
This can mainly be done by ensuring that the customers have a proper financial outlay, and framework in place, in addition to a contingency plan that can be used in lieu of justifying the amount to be loaned. This is in addition to illustrating a way regarding how the borrower intends to repay back the loan amount.
This financial outlay and analysis are helpful from the perspective of the investor because it gives them a certain sense of predictability and a financial trajectory of their investment.
Talking to a financial advisor in the case of adverse credit history is also a viable strategy that is used by individuals to prepare the paperwork and the relevant financial information that can be provided to the lenders.
In the same manner, interview preparation is also a useful technique, which might be used in order to establish proper communication channels with the investor, relating to how funding and financing can be arranged for better business outcomes.
Therefore, based on the perspectives that have been mentioned above, bridging loans can still be obtained despite a poor credit rating.
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Do you require a bridging loan and have a poor credit history? We can help, call Property Finance Partners 020 3393 9277 We will find the cheapest rates in the market.