Closed Bridging Finance
Closed bridging loans are a form of short-term finance where the lender knows exactly how you will pay the loan back – you will provide a clear exit stating a completion date by which you will have the full loan paid off by.
Closed bridging loans are different to open bridging loans in that with an open bridging loan, you do not have a clear exit strategy. You will have to pay back the loan when it is due, so you need to know how you will manage the loan repayments but you do not need to provide a clear exit strategy to the lender.
What is bridging finance?
Bridging finance is a short-term financial solution that can provide you with funds when you need it the most. Bridging finance can be ideal for providing you with finance when you need it quickly to bridge a gap to get you from A to B.
Bridging loans are used by both individuals and businesses for commercial finance. And one of the most common uses for a bridging loan is to complete a property transaction. For example, if a person is purchasing a house and hasn’t completed the sale of their current property, a bridging loan can be used to secure the purchase of the new home before the existing property is sold.
Bridging finance terms
Bridging finance is all about convenience and the term length of a typical bridging finance agreement is normally less than a year. Unlike long-term loans, such as a mortgage, a bridging loan is often repaid or ‘rolled up’ as one lump sum.
How quickly can I get a bridging loan?
A bridging loan can be available in as little as one to two weeks, however, it does depend on the application and can sometimes take longer.
This potential speed makes bridging loans ideal for purchasing auction properties quickly because waiting for a mortgage can take longer to be completed.
What is closed bridging finance?
Closed bridging finance has a definitive date where the loan is to be repaid.
If you are selling a property and have a completion date set, or are due to receive a windfall (such as inheritance), then a closed bridging finance agreement is likely to be a suitable solution.
What do I need for a closed bridging loan?
To obtain a closed bridging loan, you will be required to provide proof of how you will pay the loan back in full by a fixed date, for example, the date of a property sale. This is commonly known as an exit strategy.
Why choose closed bridging finance?
When it comes to interest rates, closed bridging loans generally offer lower interest when compared to open bridging loans because you pose less of a risk to the lender, and you have committed to a definitive date by which you will be paying back the loan. With open bridging loans, there is more of a risk of them not getting their money back and as a result, you will face higher interest rates.
What is open bridging finance?
There are two different bridge loan types; the other is open bridging finance. You may require this if you don’t have a set date for repaying the loan. It could be that you need to sell a property, without an indication of when this will happen.
With this type of loan, you will normally be expected to pay back the loan within 1-2 years depending on the terms of the agreement, otherwise it’s likely you will be charged penalty fees. You can choose to pay it back sooner and some lenders may allow you to pay some or all of the interest before you pay back the full amount of the loan.
What other purposes do closed bridging loans have?
There are other purposes for closed bridging loans. Business often need a bridging loan for cash flow or expansion reasons. A business that has seasonal fluctuations, such as retail businesses that have large sales volumes leading up to Christmas and low sales during the summer, could use a bridging loan to pay their expenses during low-income periods, with a fixed repayment date arranged during their high-profit period.
Bridging loans can also be used to purchase equipment, with repayments made from the increased production that the equipment produces. Some business take out bridging loans to pay for large amounts of high-demand stocks offered at discount prices. The loan is then repaid from the sale of the goods.
Property investors use bridging loans to secure the purchase of commercial and residential buy-to-let properties. A bridging loan can also be used to finance property refurbishment and conversion.
Whatever the reason for a closed bridging loan, lenders will need a clear exit strategy, which is a date when the loan will be repaid and where the funds to pay off the loan will come from.
A bridging loan will generally have a higher interest rate than long-term loans such as a standard mortgage. This is why companies and individuals often use a bridging loan until they have more long-term finance arranged. A decision to accept a bridging loans application can be done quickly, often in a matter of hours, and the loan can be completed in seven days or less. This is considerably quicker than a standard mortgage.
Open or closed bridging finance?
If you’re unsure which type of bridging finance is the most suitable for your needs and circumstances, all you need to do is give us a call and we can help guide you in the right direction.
You can book a free consultation with us and we can help you find the best bridging loan tailored to your requirements and provide you with a quote in minutes. However much you need, we can find amongst the most competitive rates for your loan.
Contact Ascot Mortgages today. We can give you a quote for your closed bridging loan in a matter of minutes.