What are the criteria for a bridging loan?
Need funding to meet emergency financial needs? You can get bridging loans, which are becoming popular in the UK. There are several registered bridging finance providers across the UK. Each bridging lender has its own credit granting criteria.
Bridge loans are loans that are offered for a short term and vary between 3 and 12 months. Bridge loans bridge the gap between two finances until permanent or long-term financing becomes available. Bridge loans are popular for the following reasons:
- They are short lived
- They are flexible
- No exit fees required
- Provide quick access to funds
- Secured against all types of property
Lending criteria for bridging loans
Bridge loan criteria differ from lender to lender, as each lender has their own set of rules that borrowers must follow to secure the loan. Generally, the majority of bridge finance providers have the following requirements to be eligible for the loan:
The applicant who wants to obtain a bridging loan must be over 18 years old. Some bridge financing providers also have an upper age limit.
The applicant must be a resident of the UK or have a registered address in the UK. Bridge loans can also be granted if you are located in Europe or the USA.
A viable exit route is mandatory to obtain bridge financing. An exit route defines how you will repay the loan. The more viable the exit strategy; the higher the chance of getting the loan approved. Bridging lenders are more concerned with the exit strategy as they intend to know how you plan your repayment. They assess the strength of the exit path and then approve the loan.
The most common exit strategies are sale of property/assets/business/company shares, expiring policy, business investments, inheritance money, and refinancing.
Bridge loans are secured by sureties/guarantees of any type. This guarantee can be taken over in the event of non-payment of the loan by the borrower.
Unlike a mortgage, credit history is not that important. Borrowers with poor credit history may also be considered for the conditional loan. If you provide significant security, you can obtain bridge financing even if you have a judgment from a country court (CCJ).
However, borrowers with clean credit histories can get cheaper rates and better deals.
Bridge financing is available for private and commercial borrowers. They are also offered to limited companies, private borrowers, partnerships and offshore companies.
proof of income
No proof of income is required to obtain bridge financing.
Amount and duration of the loan
Typically, the Loan-to-Value (LTV) is 70% of the open market value, but some lenders may offer up to 80% LTV. The minimum loan amount is £10,000.
The duration of bridge loans varies between 3 and 12 months, but it can be extended to 24 months or sometimes to 36 months maximum. According to Financial Conduct Authority (FCA) regulations, loans for residential purposes (regulated bridge loans) are only offered for 12 months.
In some cases, bridge financing may also be secured by assets or personal effects such as expensive vehicles, valuable jewelry, watches and antiques.
Costs and fees
There are no upfront fees and costs, but there are other fees involved, such as appraisal fees, legal documentation fees, arrangement fees and attorney fees, etc. . Usually, there are no prepayment charges.
Purpose of bridging loans
Bridge loans are used for multiple purposes, from residential to commercial.
Buy a property quickly:
Bridge loans/P2P loans provide quick access to funds. Unlike a mortgage, they can be arranged within 24-48 hours. Therefore, with such quick access to loans, you can quickly buy the property of your choice.
Purchase before planning permission:
with bridging loan, you can buy land or property before you get the building permit. You can make a purchase first and then apply for planning permission for the development of the land.
Buying a property at auction:
If you win a bid, you need fast funding, which can be arranged through bridging loans.
Renovation and refurbishment:
Bridge financing can be used for the renovation or refurbishment of a property or home.
Developing a dilapidated property:
funds raised through bridge financing can be used for the development of uninhabitable properties, and you can use this money to build basic amenities such as kitchens, toilets, etc.
Repair a broken chain
Bridging loans/P2P loans can be used to repair a chain break. For example, if you want to buy your dream home but are unable to sell your existing home because a buyer has pulled out. Bridge loans fill this gap by providing quick financing for the purchase of a home before you sell your existing home.
In addition, you can apply for bridging loans in the following situations:
- When a traditional mortgage is declined
- When you want to avoid monthly payments
- When you need quick access to funds for your new/existing business
- Deal with emergency expenses and settle bills/debts
- Fulfill tax obligations to avoid penalties
Bridge financing has grown significantly in the UK, and people are getting bridge loans because they are fast, transparent, flexible and diverse.
Obtaining bridging loans is not at all complex; you can get help from a bridging financing broker for this purpose. A viable exit strategy is crucial to qualify for bridge financing.