A bridging loan is a type of short-term business finance designed to get you from A to B by bridging a gap in your finances for a short to medium time period. It’s commonly used by property buyers and investors, but is suitable for a range of other business purposes too. When you take out bridging finance, the lender will usually have a first or second legal charge against your property.

How does a bridging loan work?

A bridge loan allows you to purchase a property before you’ve sold your existing one. It’s also commonly used by those who want to fund renovations or a new build project before they can secure a traditional mortgage. Due to the short-term nature of the finance, it’s sometimes referred to as a ‘swing loan’, ‘gap financing’ or ‘interim financing’.

If you’re planning to use a bridge loan to purchase a new home while you wait for your current one to sell, you’ll use equity in your current home as a downpayment on the purchase of the new one. Bridging finance can be used by businesses as well as individuals. There are many products out there that are tailored for different purposes.

Bridging finance is available from specialist brokers who have access to non bank lenders and institutional institutions that lend money in specialist areas. Bridging can be obtained for United Kingdom, Spain, France, Germany, Austria and many other parts of Europe. The United States is also very acquainted to the aspects of bridging finance on commercial and residential properties.

A business bridging loan is a type of commercial finance that, again, enables you to access funding over a short period of time. Providing you meet the eligibility criteria and have an exit strategy in place that is deemed valid by the lender, you can use the funds for a variety of things. Some businesses use bridging finance to get a working capital boost or to cover short-term cash flow challenges, for example.

It’s important to bear in mind that although bridge loans provide immediate cash flow, interest rates are higher and you’ll typically have to offer collateral.

Businesses may also seek out a bridge loan when awaiting long-term funding. For instance, a startup engaging in an equity financing round that is set to close in six months may take out a bridge loan in order to cover costs until it is received. These costs could include things like payroll, inventory, rent, utilities and other expenses.

Property bridging loan

A property bridging loan can come in useful if you want to buy a property but are waiting for the sale of an existing one to complete. In this instance, you can use the loan to cover the period between buying the new property and selling the old one.

Property bridging loans can also be used if you’re in a chain and part of it falls through. In the majority of instances, you can add the loan’s monthly interest payments to the balance of the loan and pay it off at the end of the term.

As long as you have equity, a way of paying off the loan and sufficient security, it’s possible to be eligible for a property bridging loan even if you have a poor credit rating.

You can also use a property bridging loan to:

• Buy a property at auction
• Pay for renovations
• Buy land for development — to cover the costs between purchasing and building on the land
• Buy an uninhabitable property — to cover the costs until you can get a mortgage (which may be once the works are complete)

One of the benefits of bridging loans for property is that the application process is usually quick: you can apply online and receive an approval within 24 hours. If your application is approved, you can expect to receive the funds within two weeks. The lender will need to value your property and carry out the necessary checks first.

Sometimes you can pay the lender to have your application processed faster.

Open vs closed bridge loans