10 Surprising facts about bridging loans you didn’t know

By Alice Ingram 29th August 2024

Bridging loans are a financial tool that often flies under the radar, but they can be incredibly useful in the right circumstances.

Whether you’re a property investor, a business owner, or just curious about different financing options, here are 10 surprising facts about bridging loans that might change the way you think about them.

1. Bridging Loans Are Not Just for Property Purchases

While bridging loans are commonly associated with buying and selling real estate, they can be used for a variety of purposes.

Businesses might use them to cover cash flow gaps, finance expansion, or purchase stock. They’re also handy for personal projects like renovations or settling urgent expenses.

Their versatility is one of the reasons they’re a popular choice for short-term financing.

2. Speed is Their Superpower

One of the most attractive features of bridging loans is how quickly they can be arranged.

In some cases, you can get approval and access to funds within 24 hours.

This speed is crucial in competitive markets where acting fast can make or break a deal. When you need money in a hurry, a bridging loan can be a lifesaver.

3. No Perfect Credit? No Problem

You might think that only those with stellar credit scores can secure a bridging loan, but that’s not always the case.

Since these loans are often secured against property, lenders may be more flexible with credit requirements.

If you have valuable collateral and a clear exit strategy, you could still be eligible even if your credit history isn’t spotless.

4. Interest Payments Can Be Deferred

With many bridging loans, you’re not required to make monthly interest payments.

Instead, the interest can be “rolled up” and paid off at the end of the loan term along with the principal.

This feature can be particularly helpful for borrowers who need to keep their cash flow free during the loan period.

5. They Can Prevent Property Repossession

If you’re facing the threat of property repossession, a bridging loan can provide the funds needed to pay off arrears and stop the repossession process.

This gives you time to sell the property on your own terms or arrange more stable long-term financing.

It’s a temporary but effective solution to a potentially devastating situation.

6. They Can Be Used for Auction Purchases

One lesser-known use of bridging loans is for purchasing properties at auction.

When buying at auction, the buyer typically needs to complete the purchase within 28 days, which can be challenging with traditional mortgage financing.

A bridging loan can provide the quick funds needed to secure the property within this tight deadline, giving buyers a competitive edge.

7. They’re Not as Expensive as You Might Think

It’s true that bridging loans generally have higher interest rates than traditional mortgages, but they’re designed to be short-term solutions.

When used correctly, the overall cost can be quite reasonable, especially if the loan helps you secure a lucrative deal or avoid financial trouble.

The key is to have a clear exit strategy in place to minimise costs.

8. You Can Borrow Up to 100% of the Property Value

In certain circumstances, you can secure a bridging loan for up to 100% of a property’s value, especially if you’re using multiple properties as collateral.

This feature is particularly useful for property developers and investors who want to maximize their borrowing power without having to put down a large cash deposit.

9. Regulated and Unregulated Loans

In some countries, bridging loans can be either regulated or unregulated.

For example, in the UK, regulated bridging loans are secured against a property you or a close family member will live in, and they’re subject to strict financial regulations.

Unregulated loans, on the other hand, are typically used for business purposes or investment properties and offer more flexibility, though with fewer consumer protections.

10. They’ve Been Around Longer Than You Think

You might assume that bridging loans are a modern invention, but they’ve actually been around for decades.

They gained popularity in the mid-20th century as a way to help property buyers secure new homes before selling their current ones.

Over the years, they’ve evolved into a versatile financial tool used by a wide range of borrowers.

Bridging loans might not get as much attention as other types of financing, but they’re incredibly useful in the right circumstances.

Whether you’re looking to seize a property opportunity, manage short-term cash flow, or avoid repossession, understanding the ins and outs of bridging loans can open up new financial possibilities.

With their speed, flexibility, and wide range of uses, bridging loans are more than just a stopgap—they’re a powerful tool in your financial arsenal.