A bridging loan is seen as interim financing or a short-term loan which is agreed quickly typically taken out for a period of anything from 2 weeks to a 1 year pending
the arrangement of larger or longer-term financing or whilst the borrower raises equity from investors or sale of other assets.
Bridging loans are mostly used for property purchases which require very quick turn
around times where long-term lending is generally a slower process and can take anything from 2 weeks to 3 months or more to be completed.
The Loans are secured by a first or second legal charge against the property,
such as commercial real estate, buy-to-let property, dilapidated property and land or building plots.
Typically bridging loans are agreed up to 50%-75% Loan to value depending on the asset type, the valuation and exit risk.
Assured Bridging loans are defined as either opened or closed and are priced to reflect the risk and exit. A loan is closed if the borrower has a clear and credible repayment plan or exit strategy in place, such as the sale of the loan security or longer-term finance. Open bridging loans are riskier to both the borrower and lender due to the greater likelihood of default.
The down side to Bridging Finance; its expensive due to the associated repayment risks. The positive side to Bridging Finance; it's a great source of cash income to a business/individual; it's quick to be agreed, it's quick to be drawn down and it's a short-term fix to what could potentially be a large problem for some people (missing out on that spot of land or property due to delays with Longer term lenders).