Bridging Finance

Posted by Mark Chandler on Jun 22, 2020 1:13:47 PM
Mark Chandler

This is a general term that refers to short-term finance in relation to the purchase or refurbishment of property. It enables you to move quickly to secure desirable properties and, whilst it is more expensive than traditional forms of property finance, it gives you the ability to exploit property transactions at short notice. These types of loans are typically available up to 65% of the 90 day value of the property, with interest rates ranging from 75% per month to 3% per month. With fees of 2% on entry of the loan and 1% on exit of the loan. It will be prudent to point out with bridging facilities an exit strategy is always required to be in place at the outset. Terms range from 3-18 months

Four things to think about when considering bridging finance

1.Have an exit strategy

An exit route refers to the termination of a financial agreement. It is an important consideration that financiers use to calculate risk. This is done in the planning phase of the agreement, so that all stakeholders understand the details.

Exit strategies are usually based upon meeting profit objectives, such as completing a refurbishment project that enables a property to be sold with equity. In some cases, exit strategies are put in place when an investment has not met its planned targets, and a different type of financial solution is needed.

2.Do the calculations carefully

As short-term financial solutions, bridging loans can be expensive. In projects where returns are guaranteed, this can make perfect sense. Snapping up desirable properties and refurbishing them is a form of investment that often radically exceeds bridging loan APR. However, sit down with your broker and do the calculations carefully. If the numbers do not add up, you might find that this is an option that costs you money.

3.Have a Plan B

Even experienced property investors often have the odd surprise. One of the reasons that BFS (UK) Limited encourages clients to be thorough with the legal documentation is to limit this risk, but planning for every eventuality is almost impossible. What will happen if your beautifully refurbished property fails to attract a tenant? Or if your commercial mortgage application –a normal step after a bridging loan –is declined? Having a Plan B for your exit strategy is not only important, it can help to secure the confidence of a financier.

4.And a Plan C

Many investment properties are bought with clear, legally binding, articulate planning paperwork. Others are purchased with dreams, visions, and hopes.

In the rapid-paced world of property development, quick decisions are the norm. This means that some of those dreams and visions are purchased with a risk.

If your planning permission is refused, it is vital to have not only a Plan B, but also a Plan C. Make sure that these are clearly in place when calculating your bridging loan, as your profit and exit strategy may be affected if these details have not been thought through.

We’re here to help

In this industry, experience matters and "the devil is in the detail”. What we at BFS (UK) Limited seek to do, with our numerous years of experience, is pre-empt to ensure that you are not embarking on an expensive project. One that is doomed to failure due to an issue that should have been glaring from the outset.

Our experience is drawn from many different financial disciplines, from strategic economics to property law. This means that we have a rounded and informed approach that is grounded in decades of experience.

Want to know more?

Contact us today to talk to one of our property finance experts

Topics: Bridging Finance

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