The popularity of bridging finance has skyrocketed over the past few years. More households and commercial customers than ever before are taking their business to the doors of specialist lenders and away from the biggest High Street banks.
Bridging finance has the potential to be a flexible, accessible and uniquely cost-effective solution for covering all types of short-term costs, says Which. It can be taken out for almost any purpose and can even be accessed by borrowers with poor credit.
However, there are several key points that need to be prioritised, both before and while applying for bridging finance. Each of the following therefore needs to be considered carefully, as it could influence your eligibility for bridging finance and the competitiveness of the deal you are offered:
- Ensure you understand how bridging finance works
A bridging loan is a completely unique financial product, with its own unique features, applications, advantages and risks. If this is the first time you will be applying for bridging finance, it is important to get to know the facility first. Ensure you understand how bridging finance works, what needs to be provided to support your application and whether you are comfortable with the lender’s repayment requirements. As with all financial products, just because you can qualify for a bridging loan does not necessarily make it right for you.
- Discuss the options available with an experienced broker
Following on from the above, an experienced broker will help you determine which of the funding options available suits your requirements and your budget. All bridging loans are bespoke facilities, tailored from scratch to meet the needs of the borrower. There is, therefore, a great deal of flexibility and a bridging loan can be used for almost any legal purpose. Your broker will help you determine whether or not bridging finance is for you and will also negotiate on your behalf to ensure you get an unbeatable deal.
- Hire a trusted surveyor to value your property
You will need to present the lender with a formal and detailed valuation of your property in order for it to be accepted as security for a bridging loan. It is therefore essential to ensure that you hire a trusted surveyor that can be counted on to get the job done right. The same surveyor could also be used to verify the value of the property you intend to buy, if this is your intended application for your bridging loan.
- Think carefully about your exit strategy
Bridging loans are only issued when the lender has total confidence in the borrower’s exit strategy. This means providing detailed and convincing evidence of a workable repayment plan for the loan. Bridging finance is strictly short-term in nature and must be repaid in the form of a single lump-sum payment by an agreed date. You, therefore, need to think carefully about how you intend to come up with the money and how you will convince your lender that your exit strategy is safe.
- Repaying as promptly as possible
With bridging finance, prompt repayment opens the door to the lowest overall borrowing costs (source). Interest applies monthly, which means significant savings can be made by repaying the full outstanding balance early. Even so, this is something that should be discussed with your preferred lender ahead of time. Many top-rated lenders encourage early repayment, though there are some that impose early repayment penalties and exit fees.
- Overall borrowing costs
It is not uncommon for bridging finance specialists to blindside borrowers with a long list of fees and charges. Many of which could make a loan that appears affordable at first glance into anything but. Avoid the temptation to focus too much attention on interest rates alone. All additional borrowing costs – administration fees, arrangement fees, legal fees, completion fees, exit fees, and so on – must also be factored in.For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at bridgingloans.co.uk today.