Who Can Borrow Money Using A Bridging Loan?
The majority of bridging loans are taken out by individuals in either a sole name or joint names. If there are more than 2 applicants, lenders will often consider more, with 4 or more people regularly taking out loans in joint names.
In addition to borrowing personally, applications are often submitted using a company structure such as Ltd company or LLP. Where a Ltd company is used, a lender will generally want to take a personal guarantee. This is a guarantee from you personally that the debt will be repaid in full and on time. We are often asked about limited company bridging loans without a personal guarantee. Although most lenders insist, there are some who will negotiate around reducing the personal guarantee or even removing it altogether.
Non-resident individuals, foreign nationals and offshore companies are also able to take out bridging finance in the UK. There are several lenders who are happy to lend under these circumstances. Pension funds and trusts are also able to borrow, although this is more of a niche area and finding a willing lender would prove very difficult without using an expert.
Before talking to an expert about your needs, there are a few other factors to consider. Bridging loans are designed to be a route to raising money quickly. Consider these 3 points before applying for your loan:-
#1 Understand what is available to you & the fees and charges due from you – When looking to take out a bridging loan, especially for the first time, it is important that you understand how the loan works and what the likely costs are. The easiest way to do this is to discuss your circumstances with an experienced bridging loan broker who will help to point you in the right direction.
Their experience and knowledge of the market will help you to find the best deal quickly and understand how the loan will work and what is expected of you. Be wary of large broker fees, many, but not all brokers charge a fee on completion of the loan. Some brokers will charge an upfront fee for every application, called either an application fee or administration fee. This is generally non-refundable, meaning that if your application is unsuccessful you will have lost your money. As a result, the risk of this potential outcome should be taken into account before applying.
#2 Consider how you will repay your bridging loan BEFORE taking it out – Bridging loans are generally repaid through 1 of 3 methods:-
- Sale of the property.
- Refinance to longer term debt.
- Money that is due to you but has not yet been received.
Due to the short term of borrowing and the fact bridging loan rates can be high in comparison to other, longer-term types of lending, it is important you are able to pay to loan off. Whether you are looking to refinance onto a cheaper form of debt, sell the property or anticipate money coming to you, it is important you are as sure as possible of the timescales.
When selecting the term of your bridging loan, it is easy to go for the shortest possible term in an attempt to reduce the amount of interest paid or maximise the net loan. If the loan term ends and you are unable to pay it back as agreed you will be in default of the loan and may well be penalised financially.
It is advised that when banking on the sale of a property, you are cautious. Delays are common and in this situation, you could miss the loans end date through no fault of your own. In this situation, you would either have to extend the loan and roll up more interest or agree on an extension but pay the interest each month. The final option would be to refinance elsewhere, which would start the whole process from scratch.
Whichever option you choose is going to cost money and if you’re unable to roll up any more interest due to the loan to value, or other factors, the strain on your finances can be tough to take. A good advisor will help you to negate this risk by ensuring your strategy for repayment is realistic.
The same can be said when refinance or money due to you is the chosen repayment method. Both of these things can be delayed and cause the same situation as above to occur. If choosing to refinance, ensure the application you intend on submitting is realistic and likely to succeed. A lender will be able to give you an initial indication of their intention to lend. By taking this step, you will reduce the risk of failing to repay your bridging finance.
#3 Choosing the right solicitor – Choosing the right solicitor is crucial to ensuring the loan completes on time and without issue. A solicitor who is experienced in dealing with bridging loans will ensure the legal process runs smoothly and quickly.
Your solicitor will act as the sole liaison between the lender and yourself when it comes to your understanding of the legal terms of the loan and the ensuring the legal work is all completed to the lender’s satisfaction. With this in mind, it is advisable that your solicitor is well versed in dealing with bridging loans.
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