LendInvest has been a specialist bridging lender since 2008 at the heart of a sector that has become increasingly competitive and professional over the years. Despite a surge in media coverage, a few stubborn myths about bridging finance linger. Here are the most common misconceptions. Once unpicked they reveal bridging finance to be a useful short-term financing option for everyday funding challenges faced by property entrepreneurs, developers, landlords and people taking on one-off property projects.
Bridging finance is a loan of last resort or an afterthought
Bridging finance is still perceived by some as borrowing of last resort. In fact bridging is commonly used as a smart solution to a range of everyday property market challenges.
Lenders view each application on its own merits, rather than trying to fit it into a rigid tickbox structure, which can make it a better solution in many cases.
Bridging finance is too expensive
The bridging sector has become increasingly competitive and the costs for standard ‘vanilla’ bridging loans have tumbled in recent years.
In addition the nature of bridging finance is short-term and its aim to overcome a temporary financial need until a more permanent solution is found. Though rates are often higher than conventional loans their short-term nature means they are frequently used to maximise profit, saving money.
Bridging finance is the Wild West of property loans
There are still some lingering perceptions of bridging lenders as ‘cowboys’: misconceptions which are entirely out of synch with the bridging sector today. As the bridging sector has become more competitive, this has not only had an impact on price but also on customer service and lending standards, each lender seeking to be the best. It has given way to a professionalised sector with high underwriting standards in place so that loans are made responsibly with the intention that they are repaid via a considered and viable exit strategy.
Repayment can come from a variety of sources. These include the sale of property, long-term refinance, sale of other assets or maturity of an investment.
In fact bridging lenders today are less like cowboys and more like tailors, with skilled underwriters who are able to assess a case and provide a custom-made solution, rather than a ‘one size fits all’ attitude.
Bridging is only useful for property purchases
The reality is bridging finance can be used for a range of opportunities which require immediate funding: a temporary cash flow problem in a cyclical business or a wish to delay a property sale; or until refurbishment has been completed.
Bridging can provide the time to achieve the best possible result for the customer. See more use examples below:
- development funding
- major refurbishment of property
- auction purchase
- paying a tax bill
- purchasing property under value
- when you need to complete the purchase of a new property before completing the sale of another property
- when you need to complete the purchase of a commercial property and the leases are not fully in place
- business turnarounds – where the business being acquired is not being managed properly
- as a revolving credit facility
- where you have excellent rates with your existing lender, but your lender will not allow you to increase your existing loan on a short-term basis, without changing your overall terms
- raising money against your main residence for business purposes
- being threatened with repossession by your current lender, so replacing with a bridge loan will buy you time to sell an asset