Facts You Need to Know About Bridging Finance

Fact-stampWhat first comes to mind when we speak of “bridging finance”? Most people would immediately think of the literal structure that we see on our usual trips around town. Funny? Not really because it’s not a far cry.

Bridging finance was named after the said adjoining structure. In the finance world, it serves a similar purpose. It connects two planes, two points, two transactions. For people who are new to the said service, this article is for you as we’re laying down the facts about thus funding method.

Technically, a bridge loan falls under the category of interim financing. This means that it is one taken out pending the application and/or availability of a bigger and permanent financing. In other words, it is a temporary loan. It serves to fulfill immediate and short term liquidity needs which without completion will render an entire transaction invalid and impossible. Too structured? Let’s simplify things down and use an example.

Let’s assume that a shoe manufacturing company is expanding its operations. It has been scouting for new locations where it shall set up shop branches. However, a huge chunk of its liquid assets are retained for other purposes so it applies for a bank loan to fund for the acquisition. We all know this type of credit, much like its siblings, are meticulous and take so much time to process. Is that an issue? It can be.

After much research, the company finds the perfect properties. The only catch is that they are perfectly situated that so many other buyers want to snatch it up. The seller can only offer it to whoever is able to provide for the requirements first and best. To solve the dilemma, the shoe manufacturer takes out a bridging finance and uses the fund to pay for the security deposit and eventually the down payment. These should be enough until the bank releases the cash which eventually pays off for the remaining balance and the bridge.

Because of their short term nature, bridging finance is faster to process. They are smaller in amount too. The same holds true for its time period which can be anywhere from a few weeks to at most of three years. In the example above, it provides for short term liquidity needs in an asset acquisition which pertain to pre-purchase expenses such as but are not limited to research costs, professional fees, survey expenses, security deposits and down payments.

Breaking Commercial Bridging Finance Myths

Acommercial loanWhen it comes to raising funds by virtue of credit, people have two main options and this is based on the factor of time namely long term and short term financing. One of the more common and widely used form of the latter includes what we call commercial bridging finance.

Providing what people refer to as bridge loans, it is a type of interim financing arrangement that allows borrowers to attain short term funds to fulfill their short term liquidity needs by connecting a need coming due and one’s bigger and permanent source of funds.

But despite of its widespread use, several myths continue to haunt commercial bridging finance so we took it upon ourselves to go bust these misconceptions. After all, how will people realize the benefits it can bring if they are filled with lies that fuel their misunderstanding about the service? To keep our facts straight, here take a look.

“They pile more debts.”

Although a type of loan, it’s not safe to assume that they’re just another liability. They’re unlike any other as they are a type of interim finance. Eventually, they will be closed by one’s main funding source the moment it becomes available. Because they are temporary and short term in nature with a period of often between two weeks to three years, it becomes less burdensome.

“They’re only meant for commercial asset acquisitions.”

Commercial bridging finance is specifically designed and catered for investors and entrepreneurs who wish to buy assets for office and business purposes. However, bridging loans in general can be used for an array of different purposes.

“They are financially hefty.”

A loan, regardless of type and size is a legal and binding obligation. But that doesn’t mean that they are all burdensome. Others may be but there are those that prove useful and beneficial instead of a burden just like bridge loans. They do come with interests but what makes them a delight to use lies in their short term and temporary nature. After computation, they prove to be cheaper since the interest rate is applied to a lesser number of months or periodic intervals.

“Paying them is difficult and meticulous.”

This is the most outrageous and silly of misconceptions about commercial bridging finance. Flexibility comes with these loans in terms of repayment. Borrowers have the option to pay it out before maturity as early as they can and want to or at maturity once permanent funding has been released and made available.

More at Alternativebridging.co.uk.

Bridging Loans Benefactors

bridging-loansDon’t we all just love perks? Who doesn’t anyway? It’s no surprise that people would always gravitate to things that would add value to their plate. It’s a primal instinct. We do away with danger and cling to what’s comfortable and advantageous. The same is true when it comes to the business of real estate. Whether you’re in it for the profit or for personal reasons, it’s something we’re bound to come across at least once in our lifetime. Speaking of which, have you ever wondered who benefits from bridging loans?

Also known as bridging loans, this form of short term finance acts on the interim. This means that it serves as a connection between immediate needs and the main means of funding. In majority of cases, it is used to provide for pre-purchase costs necessary to make the acquisition possible such as research expenses, professional fees, security deposit and down payment to name a few.

Because real estate purchases cost quite a lot, investors need ample time to gather their financial resources. But because the market is highly competitive, it puts a lot of people at a disadvantage especially when their main source is not yet ready and the asset they’re eyeing on is also of interest to others.  By now, we all probably know that the first buyer who drops the security deposit and down payment almost always gets the property. Now with such type of financing, who gets the most benefit?

  1. Investors/Landlords – For the business-minded who engage in the trade and/or leasing of properties, it becomes a stepping stone. Investors and landlords would want to expand and improve their investment portfolios and this is a tool used in its accomplishment. Surely they’d want the best assets but the prime ones are always at a competitive edge with everyone wanting to grab hold. With property bridging finance, investors and landlords get the chance to reach the finish line first even if their credit application or resource pooling is still being processed.
  2. Residents – A lot of individuals and families buy their homes by putting the current up for sale or applying for some type of credit like a bank loan or a mortgage. Both instances take a lot of time which can hamper the moving process and become a disadvantage. To hasten things up and be able to provide for the upfront costs, bridging loans are used. Once the sale of the current asset is closed or the credit has been approved, they are then used to pay for the bridge as well as the remaining balance of the property.
  3. Businesses – Others make use of a bridging loan to acquire assets for their business operations. Such is the case for a good majority of companies. Because time is of the essence and waiting isn’t exactly an option, it becomes a means to quicken the pace. More on loans at http://www.alternativebridging.co.uk.

What are bridging loans in the UK?