Bridging loan myths dispelled

Increasing demand from borrowers for flexible short-term funding has led to a rise in bridging loans. The Bridging & Development Lenders Association (BDLA) reports record completions of £1.79bn in Q3, a 2.6% increase from the previous quarter.

Bridging finance is a short-term loan (typically 12 months or less) that provides an immediate cash boost. Although it is typically used to support property transactions, it can also be used in other scenarios requiring quick access to finance.

Despite the growth in the popularity of bridging loans, there are still some misconceptions about this type of finance. Here, we dispel some of the most common bridging loan myths.

7 bridging loan myths

1. Bridging finance is expensive

It’s true that bridging loans tend to have higher interest rates than traditional loans because of their short-term nature. However, they’re not always prohibitively expensive, and the costs vary depending on the lender, loan structure, and purpose. The flexibility and nature of bridging loans can make them cost-effective.

2. Bridging finance is only for property transactions

Although commonly used in property transactions (e.g., buying a new home before selling the old one), bridging loans have many other uses, including:

• Covering property development costs before securing long-term financing or making any sales.
• Providing the funds to renovate a property and increase its value before selling it.
• Taking advantage of an investment opportunity that requires quick action.
• Covering short-term cash flow gaps, such as meeting expenses, while waiting for a large payment.

3. Bridging loans take a long time to arrange

The reality is, in fact, the opposite. One of the primary advantages of bridging finance is its speed. Unlike traditional loans, which may take weeks or months to process, bridging loans can often be arranged in a matter of days, depending on the lender.

4. You need good credit for a bridging loan

While having a good credit rating helps when applying for a bridging loan, lenders often focus more on the collateral (such as property or assets) than the borrower’s credit history.

5. Bridging finance is risky

Like all types of loans, bridging finance has risks. However, knowing these risks and having a clear repayment and exit strategy can mitigate them.

6. Bridging loans are a last resort

Bridging finance can offer a lifeline for those in financial distress. However, it can also be a good strategic option for businesses or individuals needing quick access to funds for opportunities such as property auctions or time-sensitive investments.

It’s always advisable to consult a financial expert before committing to a bridging loan. At ASC, we have over 50 years of experience in sourcing bridging finance, so if you need assistance, please get in touch.