For some people, the words ‘bridging loan’ conjures up a sharp intake of breath followed by an unspoken sentence of ‘not on your life’. Thoughts of incurring sky high interest charges for the privilege of having almost instant access to borrowed funds, followed quickly by the fear of possibly losing your home if you can’t keep up the repayments may be enough to push this type of loan firmly to back of someone’s mind.
Bridging loans are often used when it comes to buying property, they are used to ‘bridge’ a gap hence the name. Having access to these funds enables you to buy a new property before you have sold your existing home. During the transition period, you will own two properties, and the chances are you will be heavily in debt as a result. However a bridging loan could be the only way to borrow enough to tide you over. It can be a scary concept but sometimes it may be only way you can complete the purchase.
But bridging loans aren’t just there for house purchases. New businesses might consider these loans to buy stock or premises if they don’t have time on their side, or a decent credit rating to access funding from other more traditional funding sources. You might want to consider a bridging loan to consolidate outstanding debts before taking the plunge, it’s a way to start a new business with a clean slate.
Very few of us have a money tree growing in the garden, but wish we had just that when certain situations crop up and we need access to funds that just aren’t there. It might be an emergency situation or a new opportunity that without additional funding will pass you by.
So if you find you need funding and you need it now, just how deep into your pockets should you expect to dig? Be under no illusion, you will pay for the convenience.
Borrowers pay a high price for bridging loans. Ask for the annual rate as a point of comparison especially if you’re considering taking this loan out for more than a couple of months.
In this life very little is free. The same principles apply to taking out a bridging loan. Fees are charged aplenty, and could include any or all of the following: facility and/or establishment fees (basically admin fees), valuation fees, legal fees and even exit fees if you repay the loan early.
If you’re considering applying for a bridging loan, make sure you ask the right questions and as always, read the small print.