Bridging finance, also known as bridge loans or bridging loans, is a short-term loan (generally 12 months or less). Bridging loans provide quick access to funds and are typically used to bridge a gap between purchasing a new property and selling an existing property. However, there are other scenarios where bridging finance might be appropriate, including the following.
Bridging finance can be used when you want to purchase a new property but haven’t sold your existing one yet. It allows you to secure the new property without waiting for the sale of the old one.
If you’re a property developer, bridging finance can cover costs during the development phase before you secure long-term financing or make any sales.
Bridging finance is often used by buyers at property auctions who need immediate funding to secure a property. Once they’ve acquired the property, they can then secure longer-term financing.
If you want to renovate a property to increase its value before selling it, bridging finance can provide the necessary funds for the renovation work.
Bridging finance can be useful when you find an investment opportunity that requires quick action but you don’t have access to immediate funds. This scenario could include purchasing distressed properties or opportunities with a short acquisition window.
In some cases, businesses may use bridging finance to cover short-term cash flow gaps, such as covering expenses while waiting for a large payment to come through.
Bridging finance can be helpful in property chains, where multiple transactions depend on each other. It allows one party to proceed with their purchase even if there’s a delay in their property sale.
It’s important to note that bridging finance usually comes with higher interest rates and fees than traditional loans, given its short-term nature and higher risk for lenders. Therefore, it’s essential to consider the costs and risks associated with bridging finance before deciding to use it. Additionally, it’s crucial to have a clear exit strategy in place to repay the loan within the agreed-upon timeframe.
