A bridging loan is a short term loan that is a short term debt that individuals or companies use until they secure permanent or long term funding. It offers immediate cash flow and helps individuals to meet their current financial needs. Such loans are short term and last for 1 to 18 months. This type of loan is usually used by property investors and individuals who want to purchase a new property. In addition, it helps the individuals who want to purchase a new home but are waiting for the sale of existing property to get funds. It usually takes less time in bridging loan arrangements compared to conventional property loans and mortgages.  

Although short-term bridging finance has several benefits, it comes with high-interest rates, and you need to use your high-value asset or property as collateral. 

How Does A Bridging Loan Work? 

A bridging loan is used to bridge a gap when funds are needed but not yet available. Lenders offer customised bridging loans according to the needs of the borrowers. The amount of loan you can borrow depends on the value of the property you are using as collateral. Usually, you can take a loan up to 75% LTV; the more equity you have in your property, the more the chances of loan approval will be. If you want to borrow a large sum of money, you can use more than one property as security against the loan. In addition, there are flexibilities in interest payments. You can either pay it monthly or at the end of the loan term. 

Types Of Bridging Loan

There are two main types of bridging loans which are as follows:

Open Bridging Loan

Open bridging loans do not have any fixed repayment date. However, usually, you have to pay it back within a year. Therefore, lenders consider such loans as high-risk loans. That is why they avoid funding open bridging loans. 

Closed Bridging Loan

Closed bridging loans have a fixed repayment date and are best for borrowers waiting for the sale of their property. Lenders are more likely to grant such loans because they know when they will get back their money and interest. 

How Long It Takes to Arrange A Bridging Loan?

Speed is the key to bridging loan providers, and they thrive on approving the loan application as soon as possible. If the borrower has a strong exit strategy, clean credit and valuable property, the application can sometimes be approved within 48 hours, and funds are transferred a few days later. On average, it takes 10 to 15 working days to complete the process. It is faster than the traditional mortgages and bank loans that can take weeks or months to complete the process. 

The cost of bridging loans may vary from lender to lender. Being short term finance, a bridging loan is expensive compared to traditional mortgages or long term financing. If you want to find a loan at the best rates, you should shop around and make price comparisons. You can use online comparison sites like short term to get a comparison of top bridging loan providers without wasting your time and energy.