Up until recently the answer, to the question ‘Can you finance an existing bridging loan’ was ‘no’. However, some lenders are now prepared to offer loans to refinance a bridging loan. These are often referred to as “re-bridging” loans.
There are several circumstances when you may require a re-bridging loan, but lenders may have restrictions. It can be more difficult to re-bridge business loans. If the original bridging loan is six months or less old, you may find it hard to re-bridge.
Some lenders will not let you refinance the entire loan value or will not increase the total amount borrowed.
These restrictions may not make it impossible to re-finance. An experienced bridging finance broker has access to a wide range of lenders and may be able to find one that is willing to consider a bridging refinance application that other lenders will turn down.
A case study
A case study illustrates how bridging re-finance works. A developer was building five new houses, but as often happens with building construction, contractor delays meant that the project took longer than scheduled. The developer needed an extra £75,000 to complete the construction. He had used a bridging loan to help finance the project but did not have the £75,000 needed for completion.
The solution was to approach a bridging broker who found a specialist development lender to provide a bridging loan for the £75,000. This was for six months which was enough time to finish the construction and sell the houses to repay back the loan. Interest was not charged until repayment.
When you need a re-bridging loan
Unlike the builder in the example case study, you may not need a bridging loan to raise extra cash. Sometimes it’s possible to get a re-bridging loan at a cheaper interest rate than an existing loan. This can be used to repay the existing loan early and save interest payments.
An exit strategy for a bridging loan is knowing when and how you can repay the loan. If the funds to repay the loan are delayed and the bridging loan is not repaid, then the borrower can face heavy fees and extra default interest charges. A re-bridging loan can be used to give more time to raise the repayment funds.
A major concern of the lender is the value of the security used for the loan. This will usually be property which if the borrower defaults, could be sold to cover the loan repayments. This lessens the borrower’s risk on the loan.
Lenders do not want to force the sale of the property. They prefer to be convinced that the borrower has a sound exit strategy. If repayment is delayed, they need to know that payment will eventually be made, and re-financing can be a way of making sure that the borrower does not default.
Talk to Ascot Mortgages
If you have a bridging loan and think you need a re-bridging loan, talk to Ascot Mortgages to discuss the best solution.