A bridging loan is a short-term finance solution used to bridge a gap in your finances. But what can you use a bridging loan for? From breaking a property chain to purchasing auction property to financing property development, here are 6 of the best uses of bridging loans.
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- Bridging loans serve as short-term financial solutions, commonly used to break property chains, enabling the purchase of a new property before selling the current one.
- These loans are often used for buying auction properties, providing quick capital to meet tight payment deadlines that standard mortgages can’t accommodate.
- Bridging finance is a versatile tool for businesses of all sizes, offering a fast way to raise working capital for various operational needs, from covering short-term cash flow issues to funding expansions.
- Renovation and refurbishment projects benefit from bridging loans, especially when the property involved is deemed unsuitable for traditional mortgages due to its condition.
- Bridging loans are also employed in property development and land acquisition, often serving as a stop-gap solution while waiting for planning permissions or other long-term financing options.
1. Chain Break
One of the most common uses of bridging finance is to break a property chain so that you can purchase a new property before selling your existing home. You would use a bridging loan to bridge the gap between the sale and completion dates then use the proceeds from the sale to repay the loan.
Bridging loans can be used in a number of different ways including when you’re buying a property but waiting for the sale of another property to complete, if your buyer has dropped out at the last second, when you’ve found your dream home and don’t want to be gazumped, your property is taking too long to sell, the chain keeps falling apart, and when you can’t sell your old house but need the capital from its sale to buy your new property.
2. Auction Property
A popular use for a bridging loan is to buy property at auction. When buying property at auction, you must pay 10% of the purchase price on the day of the bid as a deposit and then pay the remaining 90% within 28 days to complete the purchase.
Bridging finance is ideal for auction property because loans can be arranged quickly in a few days. This means you can get the funds you need within a tight timeframe so that you can complete the purchase and meet the deadline. Standard mortgages cannot be arranged as fast and so you cannot get the funds in time to complete the bid.
Another reason why bridging finance is used to purchase auction property is because lenders consider properties that traditional lenders deem unsuitable for a mortgage, including non-standard and uninhabitable properties and those that need refurbishment.
Many use bridging finance to purchase a property at auction, carry out the renovations, then pay off the loan by refinancing to a mortgage or selling the property.
3. Business Capital
You can use bridging finance to raise working capital for your business at short notice. From small, medium, and large businesses to sole traders, partnerships, and limited companies, bridging finance is a fast and flexible way to raise business funds quickly.
Bridging finance can be used in a number of ways to generate vital funds for your business, whether you need to solve short-term cash flow problems, pay off debts and bills, raise funds for business activities, meet unexpected expenses, pay operational costs, fund a move to a new premises, or support business growth.
4. Renovation and Refurbishment
Bridging finance is ideal if you’re looking to renovate a property before selling, refinancing or renting it out. A loan can bridge a gap in your finances short-term to cover the costs of refurbishments until a long-term solution can be put in place.
A key reason for using a bridging loan for renovations is that it can be secured against properties that traditional mortgage providers deem unsuitable such as uninhabitable property, and property in a poor condition or in need of updating.
A bridging loan can be used for both light and heavy renovations. From minor upgrades such as adding bathrooms or remodelling a kitchen where no planning permission is needed to adding an extension or making major structural changes which require planning permission.
Bridging loans typically provide the capital needed to complete the renovations required to increase the value of a property. To pay back the loan, you will most likely sell the property for a profit once refurbishment works are complete, or rent it out by refinancing with a buy-to-let mortgage.
5. Property Development
A bridging loan can be used for property development finance. From small self builds to large commercial developments, bridging is quick to arrange so you can access the funds you need fast to start your project as soon as possible.
Bridging finance can be used to fund a new build or self-build development, convert existing buildings, build a property to rent it out, refurbish an existing property, fund the acquisition of a site that requires planning, bridge a gap between a purchase and full development finance, raise the capital needed to complete a partially built development, or build a property to sell it on.
6. Development Land
Bridging loans can be used to purchase or refinance a piece of land. Bridging loans are typically used to bridge a gap whilst planning permission or change of use is granted, which allows the land to be developed and then built upon or sold on.
Bridging loans can be used for all types of land including residential, commercial, agricultural, development plots, self build sites, land without planning permission, and land without planning permission.
As an example, you may have found a plot of land that you plan to build on, but do not yet have planning permission, and you cannot get development finance without the planning consent. You use the bridging loan to purchase the site then apply for planning permission. Once planning permission is granted, you can refinance the land using development finance or a self-build mortgage to pay back the loan.
These are just 6 fantastic uses of bridging loans. Bridging loans can be used to break a property chain, purchase auction property, raise business capital, fund renovation and refurbishment, finance a property development, and to purchase or refinance a piece of land. Get in touch with our finance experts to learn more about the uses and purposes of bridging loans today.
Crystal Bridging Loans is an award-winning finance distributor specialising in bridging loans. Based in Tamworth, Staffordshire, we provide a fast, reliable, and transparent service dedicated to providing simple solutions to even the most complex financial problems.