A difficult financial economy has meant that many individuals have debts. If they have difficulties repaying their debts, they are likely to run up a poor credit record. This affects their ability to obtain loans, credit cards and other finance. However, bridging finance is still available to people who have an imperfect credit score.
How are credit scores calculated?
Every time you take out a loan or credit card, the finance company is liable to report to a credit scoring company how well you manage your debts. A business that pays their invoices late is also liable to be reported to a credit scoring agency.
County court judgements (CCJs), bankruptcy and insolvent orders are public records and affect credit scores.
Credit ratings can be calculated differently from one agency to the next, but they are often rated between one and five stars. A credit score of 4 or 5 stars is applied to someone who is regarded as being minimal risk and should not have difficulty obtaining new loans.
A 3 star rating indicates a moderate risk which could cause some more cautious lenders to refuse a loan.
A 2 star rated individual has had some difficulties paying back a loan, while a 1 star rating means that the person has had severe problems repaying debts. A 1 or 2 star rating may mean loan applications are refused.
Bridging finance is different
Bridging lenders have different criteria on which they judge a loan application. They may not lend bankrupt persons a loan, but for applications from individuals or businesses with low credit score, they are prepared to look at the whole context for which the loan is required.
Bridging finance lenders are more concerned with security and an exit strategy. Normally, security will be in the form of property. The maximum loan available is expressed as a loan-to-value percentage; for example, if the property is worth £100,000 and the loan-to-value is 70%, then the maximum bridging loan available will be £70,000.
The next consideration is known as the exit strategy. This is a plan for when and how the bridging loan will be repaid. As an example, if you are a building developer with a poor credit record and want a bridging loan to refurbish property you already own, a bridging loan can be used to fund the construction work, then repaid from the sale of the property after refurbishment. The lender needs to be convinced that the refurbishment work will increase the value of the property and that the local property market is buoyant so that buyers will be easy to find. These conditions lower the risk of the borrower being unable to repay the loan and could be considered more important than the developer’s bad credit records.
How to apply
If you are an individual or business with a bad credit record, talk to an advisor at Ascot Mortgages. We will assess your exit strategy and, if it appears sound, find a lender who is prepared to provide a short-term bridging loan.