What You Need to Know Before You Apply for Bridging Finance
Bridging finance has gained immense popularity across the UK in the last few years for its variety of applications. Homeowners can use bridging finance to purchase a new home before their existing home is sold. Business owners can use bridging finance to generate a temporary cash flow until long-term funds are available. Property developers and investors can use bridging finance to fund their development or refurbishment projects. There are many benefits of bridging finance in London, such as quick access to funds, flexible lending criteria and short-term accessibility, which makes bridging loans ideal in many circumstances.
However, before applying for a bridging loan, there are some critical things that you need to keep in mind. Without proper planning and consideration, it can put you in a serious financial position. In order to help you better understand the ins and outs of the bridging loan, we have listed several key points that you should take into account before you apply for the bridging loan.
1. Understand how the bridging loan works
When you are taking out bridging finance, especially for the first time, it is crucial to understand how the bridging loan works and how to qualify for the loan. Usually, bridging finance is used as a short-term funding solution until a permanent source of funding is available. There are specialist bridging loan lenders having different lending criteria and loan terms. But, their main focus is on the property used as security and your proposed exit strategy to repay the bridging loan. Therefore, make sure you have a strong exit strategy in place before you apply for the loan.
2. Prepare all the required documents
A bridging loan application will require you to fill in various details, such as how much you wish to borrow using bridging finance, how long you need it for, why you need it and how you plan to repay the loan. It is also crucial to provide supporting documents that align with your purpose. Make sure the information mentioned in the application is accurate and clear. That is because even the smallest error in the documents can lead to delays or even a decline.
3. Don’t hide anything in your application
Most lenders are experienced professionals in the finance industry. Whatever you mention in the application, they will verify in order to make sure every detail in the application is filled honestly. Therefore, never try to mislead the lender, and always be honest about your credit history, what you plan to do with the loan amount and how you will repay the loan. You may have to pay slightly more due to a bad credit history, but it will help you get your loan approved as quickly as possible.
4. Know your borrowing capacity and limitations
Be realistic about your funding needs before applying for the bridging loan because the interest rates and other costs are directly dependent on the size and length of the loan. The more you borrow, the more the interest rates and other charges will be. The longer you use the bridging loan, the more interest you are supposed to pay. It is advisable to speak with a specialist bridging loan broker and discuss your requirements to find the best available terms based on your circumstances.
5. How long you want the loan
As a bridging loan is short-term finance, it is important to make sure that you are taking out bridging finance for a definite period only. It usually lasts from 12 to 18 months. If you choose to pay early or default on your payments, you must inquire about pre-payment or late fees, so you are not surprised by exorbitant fees. In addition, ask the lender what will be the monthly interest amount and how it will impact the overall cost of the loan if you wish to extend the loan term.
6. The cost of the loan
Bridging loans come with higher interest rates than any other form of financing. The higher bridging loan interest rates are because of the flexible lending criteria, speed of application and short-term nature. Usually, the interest rate ranges from 0.5% to 2% a month. So, before you take out a bridging loan, carefully investigate the interest rates and how much you are willing to pay. Besides the monthly interest rate, you must also take into account the valuation fees, admin fees, legal fees, broker fees and other expenses, depending on the bridging amount you want and the length of the loan.
7. Plan a strong exit strategy
Due to the short-term nature of the loan, any lender would want to know your ability to pay off the loan before granting it. Whether you are waiting for the sale of the property, anticipating money coming to you, or looking to refinance to a longer-term loan, it is vital to communicate your exit strategy as accurately as possible. Go for the fastest possible route as it will help you reduce the amount of interest. If you fail to repay the loan at the end of the term, you will be in default and your securities will be repossessed.
8. Choose an expert bridging loan provider
Choosing the right bridging loan provider is important to make sure the funds are released as soon as possible without any issues. An expert bridging loan provider who is well-versed in the bridging loans will help you find a suitable lender and negotiate the best bridging loan rates based on your financial condition. They will also help you go through the entire loan application process as smoothly as possible, so the funds are released at the earliest.
Conclusion
Leeds Bridging finance is a unique form of financing that offers quick access to funds for those looking for short-term financial support. The fact that bridging finance offers large amounts with minimum hassle, it has become an attractive financial solution for many businesses and individuals. The above-mentioned key points will help you how to go through the bridging loan application successfully and avoid any pitfalls that could lead you to financial crises. Since a bridging loan is a critical financial decision, we advise you to carefully consider all your options and seek professional guidance from an expert before applying for the bridging loan.