The Importance Of Bridging Loan For Property Development

Introduction

Bridging loans are a useful tool in the property development and investment landscape. Their ability to provide fast, reliable access to finance makes them an attractive option for property developers. It is important to understand the implications of a bridging loan when considering using property development finance.

A bridging loan is a short term loan issued by a bank or financial institution that enables the borrower to take advantage of an opportunity. As a result, bridging loans have shorter terms and higher interest rates. In addition to this, lenders often impose higher arrangement fees than traditional loans. Interest on bridging loans can be “rolled-up”, meaning that interest is paid at the end of the loan term and not periodically throughout the term of the loan. Bridging loans can be open or closed. Closed bridging loans have a defined repayment event after an agreed upon term. Open bridging loans, on the other hand, are more flexible in their repayment. With this in mind, bridging loans can be a useful tool for property developers.

The choice of financing is one of the most important decisions a property developer can make. The choice of finance can influence a variety of factors including the cost, availability of funds and the terms of repayment. It is therefore important that developers ensure they have selected the facility that is best suited to the needs of their development.

With this in mind, there are a number of reasons that a mortgage bridging loans may be well suited to a property development.

• Speed & Flexibility: Given that bridging loans generally rely on the value of the property, and not the income or creditworthiness of the borrower, they are often quicker to secure. This expedited application process makes them an attractive option for developers who often require fast access to funds. Additionally, bridging loans are not limited to one use and can be used for a number of different reasons. This flexibility allows developers to use bridging loans for their specific development needs, from purchasing land without planning to managing cash flow gaps.

• Term: The short term nature of a bridging loan makes them attractive options for developers who may need an alternative to long-term financing. Bridging loans generally range from a few months to a couple years long. This allows the developer to begin the development prior to securing long term finance (or the sale of the development).

• Availability & Approval: Bridging loans are a common source of financing, for both investors and developers. As a result of this they are widely available and easy to access. In fact, there are hundreds of bridging products specifically designed to suit the needs of a property developer. In addition to this, they often have flexible criteria and can be used where traditional facilities cannot. The large number of bridging loan providers, and products in the market, emphasises the importance of using a mortgage broker. Mortgage brokers are able to advise and assist developers in securing the right bridging loan product from the right bridging loan provider.

• Structuring: Bridging loans can be structured in a number of ways. Firstly, the term of property bridging loans can be anywhere from a couple months to a few years. This enables the developer to secure finance without locking into a long-term facility with early payment fees. Secondly, bridging loans can be structured in such a way that interest is not paid periodically, and is “rolled-up” till the end of the facility. This enables the developer to manage their cash flow without having to consider the periodic interest payments to their lender. Given that managing cash flow is one of the most important aspects of a successful property development, bridging loans are a useful tool for developers.

As you can see, there are a number of reasons why a property developer would choose to make use of a bridging loan. The dynamic nature of a development project means that there are several areas where unplanned expenditures could arise. With this in mind, bridging loans can provide developers with much needed emergency funds to ensure that the development can progress. Given that the funds are often required in short notice, mortgage brokers are essential in the application for emergency bridge finance. An Independent Mortgage broker can expedite the application process to ensure the borrower has fast and easy access to their bridging loan.

Conclusion

In conclusion, property developers should consider bridging finance as a way to access short-term finance to assist with the completion of their property development. Developers should also consider the use of a mortgage broker in order to assist them in securing a bridging loan.