What is a bridging loan and how can I get one?

A bridging loan, sometimes also known as a “bridge loan”, is a way of quickly accessing funds on a short-term basis. The word “bridging” refers to the fact that the loan can “bridge the gap” between different income streams or transactions.

Let’s take a look at exactly what a bridging loan is and what its benefits are.

Bridging Loans: An overview

Bridging loans are used when a party needs to buy something but would otherwise have to wait for the funds to become available from another transaction (typically a sale).

Historically, bridging loans have been popular in real estate and the property sector. They are often used by parties who are looking to purchase a property but need to wait for another sale to complete in order to fund it.

Let’s say that you want to buy Property A for £1 million. You have another property, Property B, which is in the process of being sold for £2 million, but that sale won’t be complete for several weeks. At that time, Property A might no longer be on the market. You then take out a bridging loan to fund the purchase of Property A, which is repaid in full once the sale of Property B is completed.

Today, businesses are recognising the benefits of bridging loans beyond property transactions. As a highly accessible finance option that can typically be completed very quickly, it is often used as a transition product before moving on to another, more permanent form of finance.

Bridging loans vary in flexibility, but because they are short-term options that can be accessed very quickly, they are generally more expensive than long-term alternatives.

There are two main types of bridging loans: “open” and “closed”. Closed bridging loans will have a fixed repayment date (often related to the completion date of a property sale, for instance).

In contrast, open bridging loans will have no fixed date but will generally need to be paid back within a year. For open loans, lenders will also want to see some kind of repayment strategy (from the sale of an asset, for instance)

What are the benefits of a bridging loan?

Bridging loans have a few distinct benefits that set them apart from other forms of finance. Take a look below to find out what they are.

1. Accessing cash quickly

Bridging loans can often be arranged incredibly quickly, as they are typically needed to finance a purchase in a time-sensitive situation. Mortgages, for example, can take weeks or months to organise; bridging loans can often be available in a matter of hours.

2. Reasonable, affordable fees

As a short-term finance option, bridging loans do have higher interest rates (ranging from 0.4% to 2%). However, this is generally counteracted by the fact that the loan is paid back in a few weeks or months.

Additionally, the interest you pay on a bridging loan can often be arranged in a number of ways with the lender. Rather than an annual percentage rate (APR), interest can be charged monthly, deferred until the end of the loan with no monthly payments, or retained for an agreed period. Your lender will be able to set out a clear plan for paying back the interest.

3. No lengthy checks

Typically, business loans require a lot of information to be reviewed in a series of rigorous, long-term checks. For bridging loans, this isn’t the case; as a form of asset-backed lending (meaning the loan is secured against an asset of value, such as a property), bridging loans need fewer checks and can be completed much more quickly.

How can I get a Bridging Loan?

If you’re looking for a bridging loan, use our consultation form here and we’ll get back to you within 24 hours. We work with a panel of over 200 lenders, including Ultimate Finance, Market Finance, and Funding Circle, who offer a range of financial products alongside bridging loans.