How Does a Bridging Loan Work?

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You may or may not have already heard about a bridging loan, but their increase in popularity, particularly with property developers, landlords and homeowners, means that they are fast becoming the lending method of choice.

Here is a guide to exactly how bridging loans work and what you need to know.

Bridging the Gap

A bridging loan, as offered by lenders such as Alternative Bridging Corporation, exists to bridge the gap between making a purchase and the time when the full funds will become available to you. A prime example of this is when purchasing a property. If you are in need of funds to purchase a property but haven’t yet received the funds from selling your own property, a bridging loan can provide the money upfront until your finances have cleared from the selling of your property. This is why bridging loans are particularly popular within the property market.

What are they Secured Against?

Bridging loans operate on a collateral basis. This means that in order to take out a bridging loan, you will need to have something of significantly high value to provide as security and collateral against the loan amount. This could include a piece of land or a piece of property. The bonus of this is that as long as you have the required collateral and the means to pay the loan back quickly, you won’t be subjected to rigorous background checks or long application processes in which your lifestyle and financial stability are checked.

What About Repayments?

Repayments for a bridging loan are usually very flexible and considered even more so compared to mainstream lending. Depending on your circumstance and preference, you can choose the repayment terms you wish for your bridging loan. Your two main options will usually be:

  • An open bridging loan
  • A closed bridging loan

An open bridging loan doesn’t have a set end date, and you can repay whenever your funds become available or extend the date to one of your choosing. A closed bridging loan has a clear repayment deadline, and this can be perfect in those circumstances when you know the exact date your funds will become available in order to fully repay your bridging loan, such as the money clearing from selling a property.

How Quickly Can You Gain Access to Funds?

Bridging loans tend to operate on a very quick basis, especially as the reasons for taking out a bridging loan for many people is to gain money in demanding circumstances, such as deadlines for closing a deal on a property or a property at auction. You can usually expect an answer of approval within 24 hours and may even have access to funds within the week. The amount of time naturally depends on your circumstances, but the turnaround for bridging loans is usually significantly quicker than mainstream lenders such as banks.

Ensure That You Can Repay

With a bridging loan, as with any loan, you need first to ensure that you have the means to pay back the full amount before you commit to any lender. Take the time to organize your finances and compare deals on the best bridging loan for you.

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