Bridging Finance Explained

If you are considering short-term loan options, you may have looked into bridging finance. Bridging finance allows you to ‘bridge’ the gap between two ends, such as a project running out of funds before they are expected to receive more. They are popular in property development. 

Interest rates on bridging loans are typically very high, however. As they are meant to be short-term loans, they are often the most viable option for those needing funds quickly. 

To be approved, you must have a strong exit strategy and show you have the means to pay off the loan once you secure the funds on the other side. You may then be offered a loan with a set timeframe.

Although you won’t repay this loan in instalments or monthly payments, you will still be expected to pay high interest on the money borrowed. This makes such loans a good choice for investments in which you will gain high profit.

Bridging loans are a good option for those wanting to buy a property and renovate it to sell at a higher cost. They can give you funds quickly in order to buy property at auction, as long as you can prove you will raise the funds for repayment. 

Loan companies will consider the potential value of your property after renovation before offering you a loan. This will also determine how much they are willing to lend and for how long. Typically, these loans last around 12 months. 

You should only consider applying for bridging finance if you know you will be able to pay it back within the time frame and take interest rates into account. If you fail to repay your property may be repossessed, which would mean you would lose everything you originally invested in, including the work put into renovations.