Bridging finance used to be the go-to product for when you hadn’t sold your own house, but had to purchase your new one. Nowadays bridging finance is a product that’s used widely for a range of purposes.
In the UK every year there is over £2bn of bridging finance lending advanced to property and business borrowers. Bridging lenders are expected to be quick but one of the other uses is their appetite for risk. Where retail banks would not lend to viable projects bridging lenders take a view of the asset and lend more freely.
Bridging finance can range from 1 month to 24 months with monthly rates from 0.50% up to 1.50%. The lenders products are invariably made up of an arrangement fee, a monthly interest rate and an exit fee. Interest can be rolled into the loan or serviced monthly, or a combination of both. Borrowing can be taken in the name of a company or an individual. A few recent deals that we have delivered for clients:
Restructuring of existing facilities to exit a retail bank. Not all refinances involving debt forgiveness can go straight on to prime borrowing so we used bridging to help transition a property portfolio back on to prime lending.
Land purchase where the borrower needed 100% of the purchase price. The loan was advanced at 68% loan to value which represented all of the acquisition and associated soft costs.
Rapid purchase of a residential property in 7 days. The developer sold on the house to cover all acquisition costs then secured planning for a new house in the garden so his land cost was zero.
Development finance extended to a developer with limited development experience. It served as a way for the developer to build their experience.
Asset protection is how one client used bridging finance. He was experiencing cashflow difficulties which meant a term debt lender was pressurising him to refinance. We refinanced in 6 weeks to ensure the property and income were retained.
With over 200 active lenders in the UK there is more competition than ever and more evolution. Bridging lenders can extend funding to businesses, property landlords or developers. Recent examples include:
SME trading business that was asset rich but cash poor. They secured finance to settle HMRC liabilities and to recapitalise the business for the growth opportunity that lay before them.
Development finance is a common purpose where the purchase and improvement of a residential or commercial property below market value can return either a short term lump sum profit or a long term yield.
Infrastructure funding can be tough to secure from the traditional sources but in a situation where there is a meaningful uplift in asset value then bridging is a good fit. It is invariably redeemed by the development finance facility.
SME trading businesses that don’t fit prime bank serviceability calculations can be quickly and easily bridged to allow for trade to improve. Once trade has been built up for a year or more then prime banking can replace the bridge.