When working with commercial property projects, you may find yourself in need of funding quickly. Bridging loans have become an increasingly popular form of finance, as they can help with numerous situations when some banks and other financial institutions may be unwilling to lend, they can be provided much more quickly than a traditional mortgage, and are strictly designed for short-term periods.
There are numerous different reasons why a commercial property developer or investor may be in need of commercial bridging loans. Here, we’re taking a closer look at some of the main ways bridging loans can be used to help realise optimal property investment opportunities.
Maintaining A Place In A Sale Chain
The way some investors work is by using the proceeds of a sale of another property in order to fund a new property purchase. However, some sales can often be delayed, resulting in the investor not having the required funds needed to complete the purchase of a new property. This is one of the most traditional uses for a bridging loan, and in this scenario, it is used to ‘bridge the gap’, allowing the investor to purchase the property without having to rely on the initial sale going through.
Buying Property At Auction
A popular place for property developers to discover available properties at excellent prices is at auction. Buying a property at auction can be a prime opportunity for developers looking for a restoration opportunity, but some developers may not have the available funds to-hand to purchase the property. Generally, at auction, a 10% deposit is made on the day, and the rest of the agreed price is made within a 28-day period after the sale (dependant on the auctioneer).
Bridging loans are a quick and effective option for developers looking to purchase a property within a set time-frame, and will not come with the delays that a mortgage could result in.
Renovating, Converting Or Restoring Properties
In a large number of cases, a property can be considered somewhat unsuitable for mortgage purposes, which is generally a result of the property being in poor condition. Bridging finance however can open doors to properties that may be in need of renovation, restoration or even conversion, which other lenders may deem to be unsuitable. This is particularly useful for those looking for a new commercial project which will consist of a renovation project, where the buyer is looking to restore and sell, or refinance and rent out.
Buying Property Below Market Value
One of the major benefits of using a bridging loan is that many lenders will lend against the open market value of a property, as opposed to the purchase price. This means that if you have found a property which other lenders are weary of as a result of the price being far below market value, and this is for a genuine reason, then a bridging loan lender is likely to provide you with the funds.
Understanding the different uses for a bridging loan can help you to realise new opportunities in property development which can be useful for both new and established property developers. Commercial property can be difficult to obtain, but a bridging loan can offer a fast, financial solution to those in need of funds as quickly as possible.