Questions to Ask When Planning a Bridging Loan

 When applying for finance, be sure to choose the right products for your aspirations and consider your current financial situation. Though external funding is an invaluable resource that helps your business progress, acquiring all the funds in a short notice is a burdensome task. This is where a bridging loan can be extremely crucial. But to make sure that the commercial bridging loan lender is right for you in every respect, you need to ask yourself a few important questions:

In What All Ways Can I Use A Bridging Loan?
Bridging loans can be used to cater to a variety of purposes. Though their main use is for purchasing and selling a property and land, you can also use it for buying apartments, houses, and other commercial units.

How to Secure Bridging Loans
In the UK, residential bridging loans can be easily secured. Typically, you are required to present collateral in the form of profitable land or property that doesn’t have any debt against it. The good thing is there aren’t any restrictions on the property you choose to present. However, you should own it outright, even if it’s residentially or commercially used. You also have the freedom to present more than one unit as collateral. Keep in mind though, if you are not able to return the loan or keep up with the payment process, lenders can seize your property.

How Much Can I Borrow?
Typically, bridging loan firms offer 80 or more % of the total cost of the property you are about to invest in. There’s no dictating limit on how much you can receive because bridging loans use a percentage. Lenders can impose restrictions though, depending upon how much they can afford or are willing to invest. 

How Long Do I Get To Repay
Bridging Loans are short-term finance solutions mostly lasting up to 12 months. Often this type of loan carries high interest. So it’s better and more cost-effective if you return it sooner than later. However, some lenders also extend the term further up to 18 months and some even offer a 3-year solution. But doing so may mean your business incurring more interest. You can also repay the loan earlier than expected but check with the lender about ERC (Early fee charges).

How Are Bridging Loan Repaid?
Typically you have 3 repayment options available:

Pay Monthly - Make interest payments at the end of each month until you return the principal or return the borrowed money entirely.

Rolled-Up Interest - In this mode, all the interest that you have incurred throughout the tenure is added up. It is then combined with the principal, and made payable at once in final payment. Do consider that this option often increases the size of the end payment.

Retained Interest - Allows you to borrow the interest incurred for an agreed number of months, aside from the funds you are requesting. The retained interest stays with the lender to assist you in making monthly interest payments. Once the agreement ends with you paying the full principal, some lenders reimburse the remaining retained interest that you weren’t able to utilize.