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Applying for a bridging loan? Read this guide first

While a bridging loan can be an excellent way to obtain short-term finance, applying for one should not be undertaken lightly. You need to do your research to ensure it is the right option for you and your circumstances. So, if you are considering applying for a bridging loan, then this guide will help to explain the key information you need to know.

Understand what is involved 

A bridging loan is one way to obtain short term funds to ‘bridge’ a temporary gap in your finances. This could be required if, for example, you want to buy a new property but have not yet completed the sale on your existing one. Or you may need an urgent bridging loan to settle an unexpected bill such as tax demand, or you want to buy land or property at an auction and need a same-day decision on the financing. 

If you are considering applying for a bridging loan it is essential that you fully understand what this type of finance involves. This includes how a bridging loan works and what the potential fees as well as interest rates could be.

Have an exit strategy

With a bridging loan, you need to be confident in how you plan to repay the money and have a clear exit strategy both you and your lender agree to. Due to the short-term nature of a bridging loan, the interest rates tend to be higher than longer-term financing, so it is also important to be able to show you have all the finances to repay the final amount. 

You should plan to repay a bridging loan in one of three ways: through the sale of a property, refinance, or utilising money that is due to you but you have not yet received. 

Be sure the repayment term is right for you

With higher interest rates, you may be tempted to opt for the shortest repayment term available to minimise the interest accrued on your bridging loan. However, if you are unable to completely repay the loan at the end of the agreed term, you may have to pay additional financial penalties.

Before agreeing to a repayment plan, always ensure it is realistic and allows for any potential delays you may experience, particularly if you are using the funds from a property sale or refinancing to repay the debt.

Always choose a reputable lender

Opting for a bridging loan is a big decision, and so you need to make sure you are getting the very best guidance and advice. Talking to an experienced bridging finance broker can not only put your mind at rest but also ensure that the whole application process runs smoothly and on time. They can also advise whether a bridging loan is appropriate for your circumstances and answer any questions you may have so you can be sure that this type of financing is right for you.

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