Property bridging loans is one of the forerunners when it comes to providing immediate short term liquidity funds. They’re popular not only to organizations and business entities but also to individuals who wish to acquire real estate assets of any kind.
Designed to supply for short term liquidity needs, property bridging finance provides what we call a bridge loan, a temporary borrowing taken pending the application/and or availability of a permanent and often bigger financing (e.g. mortgage, bank loan, proceeds from sale and income). Its most popular application goes to the initial or pre-acquisition expenses such as research costs, professional fees, security deposit and down payment among others.
Property bridging finance’s most celebrated benefit has to be its ability to reduce if not eliminate opportunity losses. Because it provides for the initial costs aka the fees that ultimately get the ball rolling, it helps buyers acquire the asset before anyone else does. We know how competitive things can be in the real estate market. Plus, properties tend to increase in price and value over time.
But like anything else, property bridging finance has to be used properly and accurately in order for it to be utilized to its full potential. It won’t be beneficial if it’s not used in the way it was supposed to be. Take the following for instance.
- Use it as a permanent financing. – If you read the definition again, the method is a temporary loan that provides for short term liquidity needs. It should in no way be utilized to replace one’s permanent financing. It only covers a few weeks to three years at most. Using it for more than that wouldn’t be wise at all.
- Overlook the exit route. – At the end of the day, property bridging finance is still a borrowing so it should still be repaid. Before taking one, you should already have a plan as to how to close it and where to source the cash from. Luckily providers allow users to choose between closing the bridge before maturity or at maturity (the date permanent financing becomes available).
- Forget to budget the cash. – Property bridging loans constitutes cash and we all know that resources have to be utilized wisely regardless of size and source. If you want to make it a worthwhile borrowing, see to it that you budget the funds wisely and allocate them accordingly.