A Comprehensive Guide to Bridging Finance
By Raphael Benggio, Head of Lending – Bridging Finance, MT Finance
What is bridging finance?
Bridging finance is a short-term loan designed to ‘bridge’ a financial gap until a long-term funding solution can be arranged. These loans are typically secured against a property or other tangible assets. Unlike traditional mortgages or business loans, bridging finance can be arranged quickly, and is characterised by its speed, flexibility, and shorter repayment terms, usually ranging from 1-24 months making it ideal for time-sensitive transactions.
Types of bridging finance
Bridging finance doesn’t take a one size fits all approach. It is a solution designed to meet borrowers’ different financial needs and specific requirements, and it includes a wide range of financing options broken into:
- Regulated bridging loans: these loans are secured against a property that is or will be the borrower’s primary residence and are subject to the Financial Conduct Authority (FCA) regulations.
- Unregulated bridging loans: these loans are used primarily for commercial or investment properties and are not subject to the Financial Conduct Authority (FCA) regulatory oversight.
- First charge bridging loans: these loans are secured as the primary charge against a property, offering lenders a strong security position.
- Second charge bridging loans: these loans are secured as a secondary charge, behind an existing mortgage or loan, offering flexibility for borrowers with existing debt.
Uses of bridging finance
Bridging finance can be used for several financing needs. These include:
- Auction finance: used for completing auction purchases swiftly before securing a long-term mortgage.
- Property development/refurbishment: used for funding heavy or light refurbishment projects or development work, allowing for increased property value.
- Chain breaks: used for completing a property purchase when a buyer for the existing property falls through.
- Business purposes: used for managing short-term cash flow gaps, financing business acquisitions, providing working capital during restructuring, or covering unexpected expenses.
Benefits of bridging finance
- Speed: bridging loans can be arranged quickly and can often be approved and funded within days or weeks. This is remarkably convenient compared to longer approval periods for traditional financing options, enabling borrowers to seize time-sensitive opportunities.
- Flexibility: bridging loans are tailored to individual circumstances. Lenders typically focus on the exit strategy and security value rather than on the borrower’s income or credit history and will often provide borrowers with flexible repayment terms and loan structures.
- Versatility: bridging loans are designed for short-term needs and can be used for numerous purposes providing a temporary solution until long-term financing is secured.
- Accessibility: bridging loans are often more accessible than traditional loans, particularly for borrowers with complex financial situations where traditional finance wouldn’t be suitable or available.
- No early repayment penalties: most bridging loans allow early repayment without significant penalties, making them cost-effective if the term is shorter than anticipated.
- Interest payment options: interest can often be rolled up (added to the loan and paid at the end) or retained (deducted from the loan advance), helping with cash flow during the loan term.
Types of borrowers – who can get one?
Bridging finance is suitable for a wide range of borrowers, including:
- Homeowners: first-time homeowners looking to purchase a new home, homeowners looking to buy a new home before selling their existing property, individuals experiencing chain breaks during property transactions, or those requiring urgent funds.
- Property developers/investors: developers needing quick access to funds for development projects or investors seeking to purchase properties below market value who need to complete within the typical 28-day auction timeframe to capitalise on short-term opportunities.
- Business owners: entrepreneurs needing quick capital to bridge cash flow gaps or fund business expansion.
- Landlords: seeking to urgently refurbish properties before selling/renting to improve property value.
- Non-standard borrowers: individuals with complex income structures, foreign nationals, or those with less-than-perfect credit histories who may be declined by traditional lenders.
How specialist lenders can help
Specialist bridging finance lenders play a crucial role in facilitating bridging finance transactions. They offer:
- Tailored solutions: specialist lenders understand the unique circumstances where bridging finance is needed and can structure loans accordingly.
- Rapid decision-making: with streamlined processes and expert underwriters, specialist lenders can assess applications quickly and provide funds when time is critical.
- Flexible criteria: unlike traditional lenders, specialist lenders evaluate each case on its merits rather than applying rigid criteria.
- Expert guidance: specialists lenders are well versed in handling unusual security types, challenging scenarios, or borrowers with complicated financial backgrounds and can advise on the most appropriate bridging solution and help develop a viable exit strategy.
The right lender makes all the difference
At MT Finance, we offer fit-for-purpose bridging loans that caters to a wide range of customers’ needs. Our fuss-free process and common-sense approach ensure clients can take advantage of time-sensitive opportunities without having to miss out. Key features of our bridging loans include:
- Up to 70% LTV
- Loans from £50,000
- Terms from 1-24 months
- Available for residential, commercial & semi-commercial assets
- No exit fees or ERCs
- Undervalue transactions
- Pre-approved funds for auction purchases
Get in touch
If you have a case you would like to discuss directly with us, we would love to hear from you. You can email our broker relationship managers at enquiries@mt-finance.com or fill out our quick enquiry form and we will be in touch with you shortly.