Understanding Bridging Finance

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1405 - Understanding Bridging Finance

Understanding Bridging Finance

by: Commercial Lifeline

Bridging finance, also referred to as 'bridge loans' and 'bridging loans', have nothing at all to do with re-constructing the London Bridge. Bridging finance is typically a short-term loan that a business uses to supply cash for a real estate transaction until permanent financing can be arranged. The word 'bridge' conveys the fact that the loan is designed to get you over a temporary obstacle. A typical use for a bridge loan is to cover situations such as when a company needs to close on a new office building before having sold their old one. They would use the proceeds of the bridge loan to continue making payments on the old building until it is sold.
Bridging finance almost always requires that you pledge some sort of collateral as security against the loan. You could offer up commercial or private real estate that you own,or are in the process of buying, machinery and office equipment or even existing inventory. If you have outstanding business and personal credit, as well as an outstanding relationship with your lender, you might be able to secure your bridge loans on just a signature.
Because the need for bridging finance sometimes arises suddenly and without warning, it is a good idea to establish a relationship with a lender before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan limit. Later, when the need suddenly arises, you won't have to wade through all of the red tape. The typical term for a bridge loan runs from a fortnight to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to match your needs.
Since bridging finance usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan. Lenders make their profit by charging interest across the life of the loan. The shorter the loan period the less interest they earn. As a result many lenders will often boost the rate by a 1/2 point or more. In general, the length of the loan, the amount of risk that is present for the lender, the quality of your credit history and the liquidity and value of your collateral all are used to help determine the interest rate.
Your best bet for securing a bridge loan at the most favourable rates and terms is to work with a qualified UK Commercial Mortgage Broker who understands the ins and outs of bridge loans. That way you can get your application in front of as many lenders as possible and end up with several who are willing to compete for your business.

About The Author

Commercial Lifeline http://www.Commercial-Lifeline.co.uk are Commercial Mortgage and Bridging Finance specialists.
This article comes with reprint rights. Feel free to reprint and distribute as you like. All that we ask is that you do not make any changes, that this resource text is included, and that the links above are intact.
articles@commercial-lifeline.co.uk

This article was posted on December 25, 2004

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