What are the Criteria for a Bridging Loan?
Need some finance to meet emergency financial needs? You can secure Bridging loans, which are getting popular in the UK. There are several registered bridging loan providers all over the UK. Every bridging lender has his own criteria for granting loans.
Bridging loans are loans that are offered for the short-term and range from 3 to 12 months. Bridging loans bridge the gap between two finances until permanent or long-term funding is available. Bridging loans are popular due to following reasons:
- They are short-term
- They are flexible
- No exit fee required
- Provide quick access to funds
- Secured against all types of property
10 Lending Criteria for Bridging Loans
Bridging Lending criteria differ from lender to lender as every lender has his own set of rules which borrowers should follow to secure the loan. Typically, the majority of the bridging finance providers have the following requirements to qualify for the loan:
Age of the Applicant
The applicant who wants to secure a bridging loan should be over 18 years of age. Some bridging finance providers have an upper age limit as well.
Location
The applicant must be a resident of the UK or have a registered address in the UK. Bridging loans may also be granted if you are located in Europe or the USA.
Exit Route
A viable exit route is mandatory for securing bridging finance. An exit route defines how you will repay the loan. The more viable the exit strategy is, the more chances are of loan approval. The bridging lenders are more concerned about the exit strategy as they intend to know how you plan your repayment. They evaluate the strength of the exit route and then approve the loan.
The most common exit strategies are selling the property/assets/business/business shares, policy reaching maturity, business investments, money from an inheritance, and refinancing.
Security
Bridging loans are secured against collateral/security of any type. This security can be repossessed in case the borrower fails to pay the loan.
Credit History
Unlike a mortgage loan, credit history is not that important. The borrowers with bad credit history may also be considered for the loan conditionally. If you provide hefty security, you can secure bridging finance even if you have a country court judgement (CCJ).
However, borrowers with clean credit history can get cheaper rates and the best deals.
Availability
Bridging finance is available to both private and commercial borrowers. They are equally offered for limited companies, private borrowers, partnerships and offshore companies.
Proof of Income
Evidence of income is not required for securing bridging finance.
Loan Size and Term
Typically, Loan-to-Value (LTV) is 70% of the open market value, but some lenders may offer up to 80% LTV. The minimum loan size is £10,000.
The term duration of bridging loans ranges between 3 to 12 months, but it can be extended to 24 months or sometimes to 36 months’ maximum. According to Financial Conduct Authority (FCA) regulations, loans for residential purposes (regulated bridging loans) are offered for 12 months only.
Assets
Bridging finance in some cases can also be secured against assets or personal belongings such as expensive vehicles, precious jewellery, watches, and antiques.
Costs and Fees
There are no upfront fees and costs, but there are some other fees involved, such as valuation fees, legal documentation fees, arrangement fees and solicitor’s fees etc. Usually, there are no early repayment fees.
Purpose of Bridging Loans
Bridging loans are used for multiple purposes, from residential to commercial.
Purchasing property quickly:
Bridging loans/ P2P lending provide quick access to funds. Unlike a mortgage loan, they can be arranged within 24-48 hours. Therefore, with such quick access to loans, you can make a quick purchase of your desired property.
Purchasing before planning permission:
with bridging loans, you can purchase land or property before getting the planning permission. You can first make a purchase and then can take planning permission for land development.
Purchasing property at an auction:
If you win a bid, you need quick funding, which can be arranged through bridging loans.
Renovation and refurbishment:
Bridging finance can be used for the renovation or refurbishment of a property or a house.
Developing a dilapidated property:
funds raised through bridging finance can be used for the development of uninhabitable properties, and you can use this money for constructing basic amenities such as kitchens, toilets etc.
Fixing a chain break
Bridging loans/ P2P lending can be used to fix a chain break. For instance, if you want to purchase your dream home but are unable to sell your existing home because a buyer has pulled out. Bridging loan fill this gap by providing quick funding for house purchases before selling your existing home.
Moreover, you can request bridging loans in the following situations:
- When a traditional mortgage is declined
- When you want to avoid monthly payments
- When you need quick access to funds for your new business/ existing business
- Meeting emergency expenses and clearing bills/debts
- Fulfilling tax liabilities so that penalties could be avoided
Summing up
Bridging finance has increased significantly in the UK, and people are securing bridging loans because they are quick, seamless, flexible and diverse.
Getting bridging loans is not complex at all; for this purpose, you can take help from a bridging finance broker. A viable exit strategy is crucial for being qualified for bridging finance.
