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Bridging Finance

Mark Hempshell looks at how bridging might be used in a property deal

To many people, bridging finance conjures up images of expensive, emergency finance only taken as a last resort - perhaps when a deal falls through at the last minute. While this may or may not have been true in the past, there is evidence to suggest that in the current financial climate bridging finance may be taking on a new role in the business of financing property, and perhaps becoming more mainstream. Figures from trade sources including the Association of Short Term Lenders suggest that the number of borrowers making use of bridging finance is increasing quarter by quarter. So in this report we will look at the bridging finance market today, take in some comment from those involved in the market and look at some case histories showing how it works in practice.

First of all let us look at why bridging might be used in a property deal other than its more commonly-known use to close a broken property chain. Bridging finance can be used for residential, commercial and mixed projects. While it is often particularly well suited to auction purchases it can also be used to facilitate the fast purchase of below market value property, where buying at a discounted price is contingent on completing quickly. It can be used in renovation and development projects, including where the property as is will not qualify for a conventional mortgage.

Other than directly purchasing a property, bridging can be used for refinancing a project, where an existing facility is due to expire, or perhaps where a project overruns its budget. In some circumstances it can be used to release capital for cash flow or business expansion, not just for purchasing a property.

Next, let us consider a few of the pros and cons of bridging finance. To start with it is important to remember that bridging is bespoke finance. Unlike a packaged mortgage product each loan is tailored to the individual situation. Also on the pros side the fact that, unlike some other finance, bridging is actually available right now must be considered - with an increasing number of lenders keen to lend.

Bridging finance can often be arranged quickly, in 7-10 days and sometimes sooner. Considerable sums may be available, typically from £50,000 up to as much as £50m. Terms can extend from as little as one day up to 24 months or more and interest payments can be rolled up. Bridging loans can be taken on a first or second charge basis and can incorporate both personal and corporate guarantees.

Very importantly for some investors, bridging finance is usually focussed more on the property and less on the applicant. So it may be accessible to investors who would struggle to meet criteria for other forms of lending.

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