Bridging loans explained – what they are, how to get one, costs and detailed FAQ

Bridging loans offer short-term funding solutions with flexibility and freedom versus other forms of financing, allowing businesses to take advantage of exciting opportunities or manage urgent financial needs swiftly.

Read on for answers to all the common questions about UK bridging loans for business.

What is a bridging loan?

A bridging loan is a short-term financial solution used to ‘bridge the gap’ between an immediate need for finance and long-term funding.

Bridging loans are often used as a stopgap measure when other forms of business loan are not available or cannot be obtained in time to meet pressing deadlines, such as buying property at auction or for covering the costs of repairs or renovations.

They can be secured against property, which means that should you fail to make repayments, the lender has a legal right to repossess your home. As such, it’s important to understand how bridging loans work before deciding if one is suitable for your needs.

Where to get a bridging loan?

Bridging loans are usually obtained from specialist lenders, such as those who offer short-term finance for property transactions.

You may also find that banks and other financial institutions offer bridging loans, although these will usually have stricter eligibility criteria.

When searching for a suitable loan provider, make sure to look at the applicable interest rates, fees and repayment terms offered.

What are the risks of taking out a bridging loan?

Bridging loans can be a useful financial tool, but with any form of lending there are risks to consider.

The most significant risk is that you may fail to make your scheduled repayments, which could lead to repossession of your property if it is used as security. Therefore, it’s essential to make sure you can afford the repayments before taking out a loan and to consider whether other forms of finance might be more suitable.

You should also take into account any additional fees that may be applicable, such as those for early repayment or late payments.

How does a bridging loan work?

• Bridging loans are a type of secured loan that is taken out with the intention to pay it back quickly, usually within 12-18 months.
• The amount you can borrow depends on the value of your property and any other assets you have available.
• You’ll also need to demonstrate that you have a plan in place for how you intend to repay the loan and that you will be able to do so within the specified repayment period.

How much does a bridging loan cost?

The cost of a bridging loan will depend on the amount you borrow, the length of the loan and any additional fees. Rates can range from 0.5-2% per month, so it’s important to factor in these costs when deciding if a bridging loan is right for you.

What are the benefits of a bridging loan?

The key benefits of taking out a bridging loan include:

• Access to capital quickly and on relatively short notice. Bridging loans are generally approved quickly, often within 48 hours of submitting an application. This means that businesses can access the necessary funds in a timely manner.
• Flexible repayment terms. Bridging loans usually come with flexible repayment terms, meaning that businesses can choose a repayment plan that works best for them.
• Bridging loans are also typically cheaper than other forms of short-term finance, such as an overdraft or credit card debt. This makes them a cost-effective way to access capital quickly when needed.

How to get a bridging loan?

How long does it take to get a bridging loan?

The time it takes to receive a bridging loan will vary depending on the lender, your personal circumstances and the amount you’re looking to borrow. However, most lenders will be able to provide an answer relatively quickly, often within 48 hours of submitting your application.

It’s important to remember that a bridging loan is a serious financial commitment, so it’s important to shop around, compare the different lenders and make sure that you are confident that a bridging loan is the right option for you. It may be worth seeking professional advice to ensure you fully understand the costs and risks associated with taking out a loan, before commit.

How much can I borrow on a bridging loan?

The amount that you can borrow on a bridging loan will depend on the lender, your personal circumstances and the purpose of the loan. Generally, people can borrow anywhere from £25,000 to £5 million, depending on their individual requirements.

What are the eligibility criteria for a bridging loan?

To be eligible for a bridging loan, you will generally need to provide proof of income, as well as details of your financial history and credit score. You may also need to provide collateral in order to secure the loan.

How much deposit is required for a bridging loan?

The amount of deposit you require for a bridging loan will depend on the lender and your individual circumstances. In some cases, a small deposit may be required in order to secure the loan, or no deposit may be necessary at all. It’s important to check with your chosen lender before committing to any agreement.

What is the interest rate on a bridging loan?

The interest rate on a bridging loan will depend on the lender, your personal circumstances and the amount you are looking to borrow. Generally, bridging loans tend to have higher interest rates than other types of finance. It’s important to compare different lenders in order to find one with competitive rates. Typical percentage rates range from 0.5% to 1.5%.

Are there any fees associated with a bridging loan?

Yes, there may be additional fees associated with your bridging loan, such as arrangement and exit fees. It’s important to read the terms and conditions carefully in order to understand all of the charges you will need to pay before committing to the loan.

What is a bridging loan calculator?

A bridging loan calculator is an online tool that can help you work out how much money you could borrow and how much it will cost, based on the information you provide. It can be a useful tool for comparing different lenders and their offerings, so you can make an informed decision.

Do I need a solicitor to get a bridging loan?

No, you do not necessarily need to use a solicitor in order to apply for a bridging loan. However, it is recommended that you seek professional advice before committing to any financial agreement. A solicitor can help ensure that your rights are protected and all legal requirements are met.

What can a bridging loan be used for?

A bridging loan can be used for a range of purposes, including purchasing property, refinancing existing debts and consolidating other loans. It is important to keep in mind that it should only be used for short-term financial needs and not as a long-term solution.

Are bridging loans regulated?

Yes, all lenders offering bridging loans must be authorised and regulated by the Financial Conduct Authority (FCA). It is important to check that your chosen lender is FCA-authorised before committing to any agreement.

What security do I need for a bridging loan?

The level of security required for a bridging loan will depend on the lender and your individual circumstances. Generally, you may need to provide a asset as security in order to secure the loan. This could include property, land or another form of collateral.

Are there any alternative solutions to a bridging loan?

Yes, there are several alternatives to a bridging loan that you may wish to consider. These include traditional mortgages and personal loans, as well as equity release plans and overdrafts. It’s important to compare different options in order to find one that best suits your needs.

What is the repayment term for a bridging loan?

The repayment period of a bridging loan will depend on the lender and your individual circumstances. In most cases, the loan will need to be repaid within 12 months, although some lenders may offer longer repayment periods. It’s important to check with your chosen lender before committing to any agreement.

What happens if I cannot repay my bridging loan?

If you are unable to repay your bridging loan, it is important that you contact your lender as soon as possible. Depending on the circumstances, they may be willing to make alternative arrangements in order to work with you and help you repay the loan.

How to refinance after bridging loan?

After your bridging loan has been repaid, you may decide to refinance the debt with a more traditional loan. It’s important to shop around and compare different lenders in order to find one offering the best terms and rate. You can then apply for the new loan in order to pay off the original debt.

You should also consider the fees associated with refinancing, as these may vary from lender to lender. It’s important to read all of the terms and conditions carefully before committing to any agreement in order to ensure that you understand exactly what you are signing up for.