Many people use bridging loans as a short term investment in order to buy a property before they sell or to unlock capital quickly. They are different from other loans in that people take them out in order to close the gap between receiving money without funding, such as selling a property or starting a business in order to bring in a profit and sell off the loan. For a basic understanding of bridging loans and the factors that determine whether they are right for you, read on for everything that you need to know.
What is the Application Process?
• Firstly, you should find a reliable broker with the terms that you believe are right for you. There are many brokers operating online which have simple application processes that you can use. For instance, Alternative Bridging Corporation offers residential and commercial loans to businesses that are looking to secure a loan against their property and unlock potential wealth in the short term.
• You will then need to contact the company and fill in an application form detailing your eligibility and other aspects which may affect the viability of the loan, such as your exit strategy.
• You will then usually hear back from brokers almost immediately or within a few days, allowing you to secure payment for a property or investment as soon as possible, without the long waiting times of traditional loans. This reply will come with a conditional offer.
• You will then have the loan for a maximum of two years before monthly repayments must start.
What are the Interest Rates?
• If you are paying fixed interest rates, this means that your rates will stay the same for the duration of the time in which you have taken out a loan.
• Variable interest rates are the other option for those looking to use bridging loans. These mean that your interest rates change throughout the duration of the loan, which can be both to your advantage and against it.
• You will either pay interest rates on a monthly basis, on a stated date or as a whole sum when repayments occur.
What are Open and Closed Loans?
• Open loans mean that you do not need an exit strategy, which allows you to easily secure the amount of money that you need much more quickly than with a closed loan when you need an exit strategy in order to get the loan.
• Closed loans ensure that you know how you will pay back the lender before the loan starts. This exit plan can include strategies such as selling off your property.
When are You Eligible?
• You will usually need property in order to secure your loan, so you should be a property owner in order to be eligible.
• You may need to show proof of your income and bank account or at least proof of an exit strategy to ensure that you are able to pay this back easily.
• You may have to show a plan related to what you will be using the money for, for instance, a property development or a business plan.