One of the biggest benefits of bridging finance is its flexibility. Unlike most business loans and commercial mortgages, no restrictions are placed on how a bridging loan can be spent.
This paves the way for a wide variety of purchase and investment opportunities, far beyond the confines of traditional credit facilities. It also makes bridging finance ideal for buying land, against which it can be difficult to secure a conventional loan or mortgage.
How Does It Work?
Buying land with a bridging loan can be surprisingly straightforward. Simple yet effective, bridging finance is a strictly short-term facility, issued over a term of 1 to 24 months. The funds needed to finance the purchase can be raised in a matter of days, and interest applies on a monthly basis – typically around 0.5% or less.
Bridging finance differs from a conventional mortgage in that it represents a temporary ‘stopgap’ solution. The funds (inclusive of interest and borrowing costs) must be repaid by an agreed date, in the form of a single lump-sum payment.
This therefore means that the borrower needs to have a viable exit strategy in mind, which will enable them to repay the loan in full and on time. For example, selling the property developed on the land upon its completion, or refinancing the bridging loan to a longer-term facility.
What Are the Pros and Cons of Bridging Loans for Purchasing Land?
As with all financial products, bridging finance has its benefits, its drawbacks and its limitations; all of which must be taken into account and considered carefully, before deciding whether or not to apply.
A brief overview of the primary pros and cons of using a bridging loan to buy land:
Speed – a bridging loan of any size and for any purpose can be accessed significantly faster than any comparable loan or mortgage. If all required paperwork and evidence is presented in a timely manner, it is possible for the funds to be released in as little as 48 hours.
Flexibility – bridging finance can be used for any purpose and can be secured against most types of land. It is also possible to qualify for bridging finance with poor credit, or with no formal proof of income.
Affordability – repaid promptly, a bridging loan charged at just 0.5% per month can add up to a uniquely cost-effective facility.
Cost Accumulation – by contrast, a bridging loan that is not repaid promptly can quickly become expensive. 0.5% per month is a competitive rate of interest, but not on a product that is not repaid as quickly as possible.
Security – it is impossible to take out a bridging loan without sufficient assets of value to cover the costs of the loan. Providing security for a bridging loan also brings the risk of asset repossession, in the case of non-repayment.
For more information on the potential benefits of bridging finance or to discuss your requirements in more detail, contact a member of the team at UK Property Finance today.
Craig Upton supports UK businesses by increasing sales growth using various revenue streams online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to increase traffic. Craig is also the CEO of iCONQUER, a UK based SEO Firm and has been working in the digital marketing arena for over a decade. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, DJKit, UK Property Finance, Serimax and also supported UK doctors, solicitors, builders, jewellers, to mention a few, gain more exposure online. Craig has gained a wealth of knowledge within the digital marketing space and is committed to creating new opportunities working with UK companies.