3 December 2024 | Written by Mercantile Trust
Product guide | Common ways to use a bridging loan
What are the most common ways to use a bridging loan?
- Investment purchases
- To rescue a break in a property chain
- Raising capital instantly
- Property refurbishment
- Business purposes
- Buying a property at auction
Investment purchases
Bridging loans are often used for investment purchases. They are often relied on due to their fast approvals for time sensitive opportunities like buying a property at auction or for purchasing properties that need refurbishment.
To rescue a break in a property chain
Bridging loans serve as a solution when there is a break in the property chain, allowing individuals to quickly purchase a new property before selling their existing one. This short-term financing option allows immediate purchase, covering the new property's cost while the borrower awaits the sale of their current property. Once the existing property is sold, the money is used to repay the bridging loan, completing the property transaction. Bridging loans offer flexibility and speed during the buying and selling process, preventing delays. However, borrowers must be mindful of higher interest rates and fees. Having a clear exit strategy, such as selling the existing property within the bridging loan's short-term timeframe, is important to repay the bridging loan.
Raising capital instantly
Bridging loans are a speedy solution to raise funds instantly. Bridging loans are ideal for borrowers who attend property auctions, and developers who are looking to kick start projects immediately. Bridging loans act as a temporary bridge for those awaiting long-term financing, giving immediate access to funds. However, borrowers should be mindful of higher interest rates and the short repayment period. Having a clear plan, such as selling assets or transitioning to long-term financing, is important to make sure you can pay back the loan.
Refurbishment
Bridging loans can be a good form of finance to help fund property development. Once the refurbishment has been completed on a property, it is up to the investor whether they choose to put it on the market or to refinance with another loan.
Business purposes
Bridging loans serve diverse business needs by offering fast access to money. Entrepreneurs commonly use them for instant funding of new business ventures. For businesses facing cash flow challenges, bridging loans can be used to cover other expenses and can be used for opportunities of business growth.
Bridging loans are also useful for purchasing inventory quickly, settling urgent debts, and for general investments. Acting as a bridge to long-term financing, they help with immediate financial needs. Despite the flexibility of bridging loans, businesses should prepare a clear exit strategy when looking to enquire for a bridging loan.
Buying a property at auction
Bridging loans are quick, short-term loans that people often use to buy a property at an auction. When you want to bid on a property at an auction, you usually need to pay right away, and that's where bridging loans come in handy. They can be fast to get, so you can have the money you need for the auction in a short amount of time. Bridging loans act as a temporary fix until you figure out a more permanent way to pay for the property, like getting a regular mortgage. However, it's important to know that these loans might cost more in interest, and you usually have to pay them back quickly. Bridging loans can be a great solution for getting a property at an auction, but you need to plan how to manage it well.
Summary
There are many ways as to why you may want to take out a bridging loan. The main purpose of taking out a bridging loan is how quickly the short term finance could be delivered to your bank account.
At Mercantile Trust, if you are borrowing via a second charge or if you already own your property funds could be delivered to your account in just 48 hours. As a result of our in house legal team, this means that we can process your application quicker, enabling your funds to be with you in just a short amount of time.
If you are considering taking out a bridging loan and would like to discuss your options with a qualified advisor, call us on our free number at the top of this page or complete our enquiry form and we will call you back at a time convenient for you.
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