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.
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.
Similarly, a commercial bridging loan can be particularly useful for businesses who are looking for expand their current office and are in need of a quick financial solution. This is particularly useful for fast-growing businesses who require additional funding during their period of growth in order to buy a new office, or expand an existing one. Some other business opportunities may also require funds quickly, with a merger or acquisition being just a few examples.
The fast-turnaround offered by commercial bridging loans can help to ensure that funds are arranged quickly and opportunities are not lost. In addition to this, when businesses invest a lot of money into an office expansion from the profits that they already have, they may suffer from low cash flow. If an unexpectedly large bill arrives during this time, then businesses may struggle with paying it off. This is another area where a commercial bridging loan can help.
Management Buyouts & Equity Release
In some cases, a business may be failing but if management believe that the business can be turned around, they may look for a commercial bridging loan in order to finance a management buyout. In addition to this, bridging finance can be used by business owners who have used equity in their residential properties to help raise capital for the purpose of expansion, as a way to release equity.
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.