Short-term bridging loans are a popular short-term financing solution, especially for businesses looking to expand their business. A bridging loan can also fulfil commitments by providing cash flow before the business owner finds a more permanent funding source. Bridging loans in the past were the last resort for those unable to secure money elsewhere. Today, however, the large number of providers and options makes it an attractive financing method.
What exactly is bridging finance? When to consider it, and how to find it? Keep reading this guide on bridging loans to learn everything you need to know.
What is A Bridging Loan?
A bridging loan is a type of short-term business finance commonly used by real estate investors, developers, business owners, and individuals until other funds become available or a long-term financing solution becomes available. Until then, we need short-term cash to fill the funding gap. Often experienced investors use this financing type to start or expand their real estate portfolio.
When Do You Need To Get A Bridging Loan?
There are several reasons why you should consider bridging loan for your business. For example, capital may be necessary to meet urgent commitments such as working capital. In that case, you can approach a lender for a bridging loan. These bridging loans tend to be more expensive compared to other borrowing, but they mean you can get the funds you need quickly.
How To Use A Short-Term Bridging Loan?
You can approach a 2nd mortgage lender for a bridging loan, as these are a fast and flexible form of financing for different situations.
You can commonly use bridging loans to purchase real estate, access financing for renovations, or apply for building permits. In most cases, funds will be available in as little as 24 hours. Investors can seize the opportunity and act before the deal runs out.
If a commercial or investment property owned by a company requires major refurbishment or is in need of small improvements, a bridging loan can cover the cost of renovations and can then be repaid by selling the property or using a long-term loan such as a mortgage.
Many landlords rely on rental income to purchase additional properties, and building a portfolio can be a slow process. Bridging loans help investors keep buying real estate they can purchase later by refinancing it into a long-term solution, such as a long term mortgage. You can repay the bridging loan when you set up a standard mortgage. It allows investors to continue expanding their portfolios without waiting for cash flow to return.
Broken Real Estate Chain
If you are purchasing and selling property in a company name and have found a property you want to buy but you are waiting to sell another property, a bridging loan is available for the property you are selling. You can repay the loan once you sell the property. It means that an investor can purchase a new investment, find a tenant and generate income from the property while waiting for the sale of the previous property to be completed.
Bridging loans can be used for commercial purposes when funds are unavailable to sell or refinance a property. It includes supporting the business by making payments, such as taxes or covering outstanding expenses.
Benefits of A Bridging Mortgage
Bridging loan terms and conditions are tailor-made to this marketplace and can range from different lenders. Business owners primarily based in Australia use these loans to meet their needs. The various benefits of bridging short-term business finance are:
- Capitalised costs and interest
- Same-day approval
- No month-to-month payments
- Simple online applications
- Credit score irrelevant
How Does It Work?
In easy terms, the lenders will secure the bridging loan by taking a mortgage over your current property and use the available equity to provide the funding your business needs. When you sell or refinance your property you pay off your bridging loan mortgage. It is where the period ‘bridge’ comes from – the mortgage is considered as a bridge from one property to another.
What Occurs Once You Are Ready To Payout The Bridging Mortgage?
When you are ready to repay the bridging loan mortgage, there are a few ways this can occur. Whichever way, we are right here to assist you.
Pay The Bridge Mortgage Out in Full
If you are selling your current home being used as security for the bridging loan, the debt will be paid out when the property sale is complete. This will repay the loan in full.
Refinance To Another Mortgage
When you are ready to repay the bridging loan you can approach other long term lenders to take out a long term loan that will repay the short term bridging loan, this will be at a cheaper rate and you will have up to 30 years to repay the loan if you need it.
How Much Can You Borrow With A Bridging Mortgage?
The highest loan amount you can borrow is 75% of the value of the property being used as security, which is what we call the Loan to Value ratio (LVR). Once you select the 2nd mortgage lender and choose one to work with, they will complete an assessment on the value of the property being offered as security, 75% of the value less your current mortgage is the amount of bridging finance you can apply for.
Short-term bridging finance or a bridging mortgage is a great option for your business to obtain funds quickly until you get a long-time option in place. We hope that this blog will be beneficial for you!