A guide to Bridging Loans

What is a Bridging Loan?

A bridging loan is a short-term loan designed to provide immediate funding while waiting for a longer-term solution to be put in place, such as the sale of a property, the approval of a mortgage, or securing long-term financing. These loans are usually secured against an asset, such as property, and can be arranged quickly to meet urgent financial needs.

Bridging loans typically last anywhere from a few weeks to 12 months and are repaid in full once the anticipated funds are available, such as when a property is sold or refinanced.

How Does a Bridging Loan Work?

1. Application Process
The application for a bridging loan is generally faster and less complex than traditional loans. The lender will assess the value of the asset (usually a property) and the exit strategy, which is how you plan to repay the loan.

2. Receive Funding
If approved, you receive the loan amount, which is typically between 65-80% of the asset’s value. These funds can be used immediately to cover short-term financial needs.

3. Repayment
Bridging loans are usually repaid in one lump sum at the end of the term, once the property is sold or long-term financing is secured. You may also have the option to pay interest monthly or roll it up into the final repayment.

When to Use a Bridging Loan

Bridging loans are useful in situations where quick access to funds is essential. Here are some common scenarios where a bridging loan can be beneficial:

• Property Purchases: One of the most common uses for bridging loans is to secure a new property before selling your existing one. This helps avoid missing out on opportunities, especially in competitive markets.
• Refinancing or Development: Businesses or investors may use bridging loans to refinance existing debts or finance property development projects while waiting for longer-term financing.
• Auction Purchases: If you're buying property at an auction, you may need to secure funding quickly, as auction properties often require a 10% deposit on the day of the auction and the balance within 28 days. Bridging loans can provide the necessary capital.
• Business Cash Flow: Bridging loans can help businesses manage cash flow when waiting for other funding, such as customer payments or the completion of a longer-term loan arrangement.

Benefits of Bridging Loans

• Speed: One of the biggest advantages of a bridging loan is how quickly you can secure funds, often within a few days. This makes them ideal for urgent financial needs.
• Flexibility: Bridging loans can be tailored to meet specific short-term requirements, whether you’re purchasing a property, refinancing, or covering temporary cash flow issues.
• No Long-Term Commitment: Since bridging loans are designed to be short-term, they are a good option for temporary financing without long-term commitments.

Risks and Considerations

• Higher Interest Rates: Bridging loans typically come with higher interest rates compared to traditional loans because they are short-term and often arranged quickly. It’s essential to factor in these costs when calculating the total cost of the loan.
• Repayment Risks: The success of a bridging loan depends on your exit strategy—how you plan to repay the loan. If your plan to sell a property or secure long-term financing falls through, you could face difficulty in repaying the loan.
• Fees: In addition to interest, bridging loans may come with additional fees, such as arrangement fees, exit fees, and legal costs. Make sure to understand all the associated costs before committing to a bridging loan.

Is a Bridging Loan Right for You?

Bridging loans can be an excellent option if you need short-term funding to cover a financial gap and have a clear exit strategy for repayment. However, it’s crucial to assess your ability to repay the loan and consider the higher interest rates and fees involved. If you're confident in your exit plan and need funds quickly, a bridging loan can help you secure opportunities or manage urgent financial needs.

Ready to take the next step?

If you think a bridging loan is the right solution for your needs, the next step is to speak with a trusted lender. At Lendaly, we offer flexible bridging loan options tailored to your specific requirements. Our team can guide you through the process and help you secure the funds you need quickly.