LA BRIDGING

Asset based lending is when a Loan is granted against a proportion of item’s value like a property or realisable resource that provides security to the lender as alternative collateral to cash. In short, this means the lender can take full possession and sell the asset used as security should the Loan not be repaid and gives the lender the ability to recover any outstanding debt the borrower may have at the end of a loan agreement should it be necessary. For this reason, it is imperative you have a clear and financially viable exit strategy, as this will form part of the Loan agreement you enter with any asset-based Loan.

Bridging Loans should only be used as a short-term solution, they are a great and flexible finance tool that can provide almost instant cash to meet a deadline that can save money on a transaction, fulfil a financial commitment or open opportunities that may not otherwise exist. A good time to use a Bridging Loan is when timescales are paramount as a Bridge can improve your position, allowing you to seal a deal quickly and give you an advantage and upper hand during negotiation or when making critical closing offers. Bridging can be an exceptionally powerful for those who understand what they are trying to achieve from a variety of different business scenarios, it is an excellent tool that can either help turn the tide in your favour to meet a deadline or gain business leverage.

However, a Bridge can only be as good as the opportunity it is being used for. If a person or company taking a Bridge does not understand the fundamental reasons or financial benefits of a Bridge in the full picture of a project or acquisition, then a Bridge will appear an extremely expensive form of finance. However, the cost should be viewed in relation the overall goal trying to be achieved.

The majority of UK lenders will want to roll-up interest payments, so you only pay at the end of the term and you only pay for period of time you use the Bridging Loan. In some rare cases the lender may impose an exit fee but the majority of the lenders we deal with, don’t charge an exit fee and the term of a Bridging Loan is usually 12-18 months.

A Bridge It can be used for most business ventures, tax bills, property acquisition and development. For example, if you were thinking of purchasing a property at auction and only have 28 days to deliver proof of funds, a Bridge can be put in place to provide you with the relevant funds to complete the purchase. Most bridging finance applications can be completed within 10-14 working days, subject to basic credit checks on the applicant and the relevant valuation of the asset or property being offered as security and due diligence on the use of the Bridging Loan.

There is also a legal process which needs to be carried out but we aim to get this completed within 7 days by working with the borrower’s and lender’s solicitors.

There are two main types of Bridging Loan, an Open Bridge and a Closed Bridge.

An Open Bridge has no defined end date to repay the Loan but Loan terms for this type of Bridge usually last 18 months before repayment is expected by the lender. These tend to be more flexible and as a result can cost more than a closed Bridge facility. A closed Bridge has a defined end date in the terms you agreed, and the lender would expect to be in receipt of funds on or before the date specified in order to pay back the loan in full. Terms for this type of Bridge are usually up to 12 months or less.

A rough guide for Bridging interest is 1% per month, however, this may vary up or down according to the purpose of the Bridge, the security being offered and the credit history of the applicant. Those who can provide a strong case in these areas can potentially expect to obtain competitive rates. You should also factor fees for lender, broker, valuer/surveyor, solicitor and conveyancing.

In order to obtain a Bridge, you will need a deposit equal to 30-35% of the Bridging Loan required. The lender will want some form of security, this will usually be in the form of a First Charge over a property or other asset. If the security being offered is deemed unsatisfactory or insufficient in value you may need to offer an additional asset(s) as collateral, this may include your personal home.

One of the most important aspects of a Bridging Loan is how the Loan will be repaid and this should be part of the overall plan, project or transaction from the outset. In most cases the Bridge will be repaid from the sale of a property or asset, alternatively we can help in arranging long-term finance in the form of a commercial loan or mortgage to replace the Bridging Loan as part of our service.

• realised from either the sale or long-term refinance of an asset or property.
• The interest on a Bridge will be higher than traditional commercial Loans, but it is more flexible and as it is purpose built to be a short-term Loan facility. A Bridge generally does not carry an exit or early redemption fee attached to the loan agreement.
• Read the terms of a Bridging Loan agreement carefully before contractually committing and signing any paperwork as a handful of smaller independently funded Bridging providers do make a charge for exit as part of their heads of terms, regardless of when the Loan is repaid, in these instances the exit fee will usually be 1% of the total Loan that will need to calculate in your costings.
• In almost all cases, interest will be roll-up and added to the total amount of the Loan, so there are no monthly payments to be made during the period of the Loan.
• The Loan facility is based on the security being offered against the Bridge rather than income or the ability to make monthly payments to service the interest or capital of the Loan.
• The lender will require a deposit of 25-35% as proof of your financial commitment and input to the business venture or project.
• The lender will expect you to have a planned timescale of any transaction or project together with a defined and financially viable exit strategy of how the Bridging Loan will be repaid. This is to enure the asset and subsequently their money is safeguarded at all times against the asset or property assigned and held as security against the Bridging Loan facility.