What Is A Bridging Loan? Your Questions Answered

bridging loans couple photoWhen quick funds are needed to support a business venture or purchase, a bridging loan may be the best option. Bridging loans are interim finance solutions that provide clients with immediate capital – this type of short-term loan is interest only and is secured by an owned property or property that is being purchased.

EuroGuide provides clients with a wide variety of bridging loans to meet almost all funding requirements and fit any unique purchasing situation quickly and efficiently.

Question: How Does Applying for a Bridging Loan Work?

To apply for this type of loan, simply contact us directly to begin the process. In order to ensure a quick disbursement of funds, make sure to have information such as client’s name, address, the address of the property being used as security, its purchase price and appraised value, the solicitor’s contact information, the amount of funds requested, and preferred repayment method easily available.

If the funds are being used to build or refurbish a residential or commercial development, please make sure to also have site plans, budget costs, and planning consent documents available.

Once the application is complete, we will process the request quickly and provide an initial assessment within two hours of submission. A decision on principle will also be made over the phone and via mail with 24 hours. Once the client has agreed to progress the application, a certified copy of the client’s passport, recent utility bill, and any initial fees will need to be presented.

The initial fees will be outlined in the Key Facts Illustration, also known as the lending proposal. Funds are usually available to the client within 7 to 14 working days.

Question: How Much Can Be Borrowed?

Bridging loans can vary from one situation to the next, depending on a variety of factors. Loans range from £25,000 to over £50M+ depending on the value of the offered security. Loans generally reflect 65 to 75 percent of the value of a property being used.

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If additional security options are available, it is possible for the percentage of property taken into account to jump to 100 percent. The details of the proposed project and whether it is development, refinance, or purchase can also factor into the amount of funds a lender will offer.

Question: What Type of Security is needed and what is the Typical Term of a Bridging Loan?

Bridging loans are usually secured by long leasehold or freehold properties by the first charge over the property. If the client is a company or business, lenders may require personal or debenture guarantees. Typical terms of a bridging loan will vary depending on the loan’s unique circumstances.

Terms can range from a 30 to 90 day period, one year period or longer if the funds are being used for a development project. In these situations, loan terms may be extended to 18 months to allow the client to complete the refurbish or renovation project and arrange a sale or refinance.

Question: Are There Any Upfront Fees When Applying for a Bridging Loan?

Yes, there are some upfront fees associated with applying for a bridging loan. Lenders incur costs when setting up this type of loan and processing an application. Lenders look to ensure that these costs are offset by charging some upfront fees. Upfront fees usually consist of an application fee, legal fee and/or valuation costs.

EuroGuide will provide all clients with tailored quotes for all applications that detail these costs before moving forward with the application process and make sure clients understand how these fees are calculated and charged.

Question: What Are the Rates and Charges?

Rates and charges will apply to a bridging loan but the amount is dependent on the specific details of the proposal and a number of other factors. Details of the loan including the type of property, location, current value, loan percentage based on the property’s current value (known as Loan to Value, or LTV), and the proposed borrowing terms all play a role in the final price structure of the loan.

We will work with a number of lenders to help ensure that clients get the best possible deal and terms for their unique funding needs.

Question: Can Interest Payments Be Added to the Total Amount of the Loan?

Interest payments can be added to a bridging loan. Lenders will often offer clients this option in one of two ways – lenders can offer to subtract the interest from the loan being advanced or offer an interest role-up option. The details of this type of offer will depend on the requested value of the loan and the details or the proposal overall. In the initial offer documentation, we will outline a client’s interest options as well as other pricing details.

Question: Are there Any Penalties for Paying Back a Bridging Loan Sooner than the Agreed Terms?

When considering a bridging loan, lenders may specify a minimum term of 30 days when it comes to repayment. Typically, if full repayment is made after this minimum term expires, there will be no early repayment penalties imposed by the lender. If a minimum term stipulation is specified in the loan’s details, it will be clearly outlined in the initial offer documentation from EuroGuide and thoroughly explained to clients to ensure clear communication.