A Bridging loan is a short-term funding option that was designed to bridge a gap while you’re waiting for the finance you need to complete a property project.

The loans are also sometimes used to stop repossessions, although many finance experts would stress that they should only be used in this case if there are absolutely no other alternatives. Newington Green estate agent, M&M  Property explains “Bridging loans can be a great option if you need short-term cash, but as is the case with other fast finance solutions (think payday loans) they can be considerably more expensive than more traditional routes.”

They are often used to help people complete on their new purchases when their existing homes haven’t yet been sold. As well as providing a valuable stop gap in the normal sale process, a bridging loan is also helpful if you’re buying at an auction.

Robert Holmes explains the reason for the sudden popularity of bridging loans. “It’s a well-known fact that since the economic crisis, lenders have tightened their bootstraps and are much more choosy about who they lend money to. This means that anyone with less than perfect credit will find it much harder to get hold of the money they need to complete a sale, hence the increase in bridging loan applications.”

They are usually aimed at landlords and new property developers looking to expand their portfolios and are also popular with wealthy borrowers who want to speed up the process and cut out the red tape found with high street lenders.

They are also suitable in a variety of other circumstances, such as:

• Renovation and development projects- if you’re planning to develop an area of land or want to renovate a property, a bridging loan can be a great way to free up cash fast.
• Help with legal fees- if you’re going through a costly divorce, a bridging loan can provide you with the money you need to buy a new home.
• Avoiding bankruptcy and repossessions- in much the same way as they can help people avoid their homes being repossessed, bridging loans can also provide a short-term financial solution for those in danger of bankruptcy.

How it works:

The bridging loan usually takes just a few steps:

STEP ONE:
You contact the lender online or by phone and submit your initial application for an in-principle decision.

STEP TWO:

A financial advisor or sales representative will call you to discuss your application in more detail to gain a clear picture of your circumstances and specific requirements.

STEP THREE:

You’ll be presented with your options and, if appropriate, the agreement will be drawn up.

STEP FOUR:

Your funds will be drawn down and you’ll be able to begin work on your property project or pay off your outstanding debt.

Proskips summarises “Bridging loans can be great if you need to move quickly on a property project and are looking for short-term cash to seal the deal, but do be advised that special care should be taken with any high-interest loan.”