Bridge finance has been a critical source of capital during the pandemic, and the market is expected to stay robust. As we progress through the tails of the pandemic, it’s critical that individuals and companies understand their alternatives. We’ve uncovered five prevalent myths and misconceptions about this popular funding method.
1. Bridging is a Loan of Last Resort
Bridging was often seen as a last choice for those who had left finance too late or were unable to acquire it elsewhere. This is no longer true.
Finally, property experts look for bridging to meet a short-term necessity. Their immediate approach may not be compatible with a term loan. They do not want to incur the Early Repayment Charges (ERCs) that term lenders may impose.
Bridge finance is the first choice for many experienced investors and developers to support their short-term property strategy. It is also becoming a more popular source of investment for smaller property developers. While the amount of intricacy varies based on the sort of funding, lenders will always sit down with a developer or investor to go over the loan structure in detail before progressing. Eligibility and due diligence criteria always apply.
2. Bridge Financing is Too Expensive
In recent years, the cost of ordinary ‘vanilla’ bridging loans has decreased as the bridging business has grown more competitive.
Furthermore, the essence of bridging finance is short-term, with the goal of meeting a temporary financial need until a more permanent solution is discovered. Though interest rates are usually higher than on traditional loans, their short term nature means they are commonly employed to maximise profit while conserving money.
3. A Good Credit Score is Necessary
Most traditional lenders expect both individual and company borrowers to have strong credit. If you have made late payments in the past or defaulted on a previous loan, your credit rating will most likely suffer. As a result, some lenders may deny loans or give loans at exorbitant interest rates.
A bridging financing lender is more concerned with the value of the property used as collateral for the loan and how and when you can return it, and will normally allow you to pay off the loan early.
This is more important than the company credit rating if you have solid repayment arrangements and the lender understands where the cash will come from. This means that it is possible to obtain bridging finance with an imperfect credit history.
4. A Bridging Loan Approval Takes a Long Time
Many common loans, such as commercial mortgages and bank loans, might take several weeks to complete. A bridging loan can be obtained considerably faster. If the loan is needed for a time-sensitive transaction, the bridging broker might collaborate with the lender to ensure that the funds are accessible within a few days.
5. The Penalty for Defaulting is Steep
In the bridge market, default penalties are often severe. Most bridging loan providers do not levy default costs. Instead, the emphasis is on the client connection and communication to assist in determining what went wrong and suggesting solutions. For example, the property in issue may require a fresh marketing strategy or hiring a new marketing agency.
Conclusion
The key to using bridge financing is to know how to choose a reliable lender and broker. Don’t let a lack of knowledge prevent you from getting the funding you need. Contact us today to learn more about the range of bridging products available to you.
If you are in need of a bridge mortgage, turn to A Move Brokers. We offer stress-free mortgaging services. Let us help you through this difficult time, so call us now for an initial free consultation.
Disclaimer: This article is for information only and should not be seen as advice or a recommendation to act. As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.