Bridging finance has become an increasingly popular choice among private and business borrowers alike across the UK. In fact, records show that bridging loans activity in general hit an all-time high towards the end of 2018.
But what is it about bridging finance that holds such appeal? Or more importantly, what are the key differences between a bridging loan and a traditional bank loan?
While most funding solutions share a number of similarities, there are several important differences that separate bridging loans from bank loans, such as the following:
- The vast majority of bank loans (secured loans in particular) are designed to be repaid over a period of several years. By contrast, the average bridging loan is repaid within six months – sometimes considerably quicker. Hence, bridging finance is more about short-term funding than a longer-term bank loan.
- Most mortgage products and secured loans available from major lenders are secured exclusively on habitable property owned by the applicant. With bridging loans, it’s often possible to secure finance against the value of any type of property, land or other assets of value deemed acceptable.
- One of the most common reasons for rejection with traditional bank loan applications is a poor credit score. Even if the applicant is able to provide sufficient collateral to cover the loan, bad credit could still count them out of the running. With bridging loans, it isn’t always necessary to undergo a credit check to qualify.
- The same also goes for proof of income, which is always required when attempting to secure funding from a traditional bank. Once again, bridging finance specialists are interested primarily in the collateral used to cover the cost of the loan – proof of income often being superfluous to requirements.
- In general, the flexibility of bridging loans can be greater than that of a traditional bank loan. Applications are considered by way of individual merit, rather than the usual binary yes/no mentality. Repayment terms and conditions can also be uniquely flexible with bridging finance.
- It’s becoming increasingly rare for a bank to offer a loan or mortgage worth 100% of the purchase price of the property. Nevertheless, 100% LTV loans are perfectly possible to obtain through bridging finance.
- Even with extensive proof of income and a flawless credit report, it can take weeks or even months to organise a major bank loan. With bridging finance, it’s possible for the required funds to be made available in a matter of days. Ideal where urgent or time-sensitive expenses are concerned.
- As a bridging loan is repaid within a shorter period of time, overall borrowing costs can be kept to absolute minimums. Depending on the circumstances, bridging finance can be significantly more cost-effective than a traditional bank loan.
- Last but not least, it’s rare for any age-restrictions whatsoever to be placed on bridging finance. By contrast, it’s equally rare for a traditional High Street lender to lend even a moderate amount of money to an applicant over the age of 55.
Your own personal circumstances and intentions for the loan will determine which funding solution works best for you. Always consult with an independent financial adviser or broker, before submitting your application.
This article was written by iConquer