As the name suggests, a bridging loan aims at bridging a funding gap until a final transaction goes through. One of the most common uses of bridging loans is for residential purposes. Often, homeowners use bridging loans to finance new properties while their existing properties are still on sale.
These short-term loans can also be used to fund a huge range of other financial requirements from auction purchases, divorce settlements to even resolving cash flow issues for individuals and companies.
If you require here’s a bridging loan checklist with what to do when applying.
Bridging loans have a short-term span, usually 12-24 months, and may come with relatively high-interest rates. You’ll also need collateral to back your bridging loan request. Besides these specific characteristics, bridging loans share many similarities with other traditional loans and thus, lenders demand the best practices in applying for these loans. Some of these best practices include:
- Research brokers
The financial market is home to many lenders. They provide varying terms and conditions based on their assessment of the borrower market. Therefore, it’s essential to perform a background search on multiple brokers before making your final choice. Assess their terms and conditions, ensuring they fit your objectives and circumstances for taking the bridging loan.
You can also review customer submissions of lenders’ services. Customer reviews help understand what current borrowers say about lenders and their services. These insights can help you narrow your search down to the right fit.
- Know your exit strategy
An exit strategy is your plan for how you intend to repay the loan. Usually an exit strategy and the method to repay the loan is via the sale of property, refinancing or arranging a longer term solution such as a traditional mortgage. Lenders demand this strategy as part of your application essentials. It helps them determine your ability to repay your bridging loans.
- Be truthful and transparent
Truthful information and transparency is non-negotiable for an effective lender-borrower relationship. Lenders need as much relevant information as possible during the application process. Transparency can fasten your application process and improve your success rate. It’s crucial to be forthcoming about past and present difficulties with your lender. Heeding their advice can increase your chances of securing your bridge loans.
- Have a timetable
Bridging loans come in fixed and short terms. A practical cash flow timetable should be a must-have for all borrowers. It helps you decide the periods to pay back your loan amount. You can tailor this timetable to your established income streams, making it easier to finance your repayment. For instance, your timetable can integrate with the payment plan agreed to by your existing home’s prospective buyer.
Key things to avoid during your bridging loan application stage include:
- Don’t leave application fields blank
When filling out your loan application form, it’s tempting to leave specific fields blank, especially if you’re unclear about the submissions. However, leaving these fields blank can delay your application process.
Providing information to the best of your knowledge is better than leaving spaces blank. You can indicate your limitations by answering these questions. Lenders prefer honest submissions to help understand your needs in detail and provide the most effective assistance.
- Don’t copy and paste.
Be mindful of unclear communication. Copying submissions from other application forms can make it hard for lenders to assess your current situation and provide the right assistance. Avoiding unclear communication can improve your chances of securing your bridge loan.
If You’re Still Unsure
Always consider discussing your situation with a broker. They know the industry and will be able to help you fully understand the circumstances, fees and what is required when you complete your application.
Getting specialist advice is going to help you complete your application to give you the best chance of approval, and thereby removing any additional stress or anxiety.