As the cost of finance is increasing, bridging ... - Bridging Loans

There are many reasons for taking out a bridging loan and recent years the number of bridging loans being taken out has increased significantly. This is because other lending options have become more difficult to obtain resulting in bridging loans being sought as a backup option. Because bridging loans are only intended to be a short term facility, and can be more expensive than other finance options, the increase in their popularity has, until recently, been largely due to other options being more difficult to obtain.

Since bridging loans have become more popular, there has been an increase in the number of bridging finance providers rushing into the market to meet the rising demand. In addition, the amount of funds available to bridging lenders has also been increasing because investors are seeing better returns from putting their money into bridging finance than they would from other investments. The increased number of lenders and increasing availability of bridging finance funds has led to a more competitive market, causing lenders to offer more attractive deals.

With costs rising for other methods of finance, as the banks are finding it more expensive to raise funds, combined with the costs of bridging loans decreasing, many borrowers are starting to opt for bridging finance over other options available to them, purely because bridging finance offers the best deal with regards to cost.

It is however important to consider what other finance options are available, especially if you require a long term method of finance. It will usually always be, wherever possible, more cost effective to opt for the long term finance option at the start, rather than taking out a bridging loan to later clear it with the long term finance option.

Bridging loans are often used for funding a property purchase at auction, because funds need to be in place quickly, within 28 days following a winning bid. However there are excellent buy to let mortgage plans available that can be completed in just 2 weeks, so if buying an investment property at auction to rent out then this option could be much more suitable.

When looking to renovate or expand an existing property, or build a brand new property from scratch, a bridging loan can be used to fund the building work. Perhaps a better option could be development finance, which is specifically intended for such projects. The main advantages of development finance is that the money can be released in stages as it is required, which saves when it comes to interest charges. In addition development finance allows facilities to be taken out that have longer terms. Removing tight time scales that can be associated with bridging finance can make life much easier and remove a lot of pressure.

Money maybe required for the short term to simply cover a sudden cash flow problem caused by the bank withdrawing an overdraft facility. As an alternative to taking out a bridging loan to cover this loss, asset refinancing may provide a better option provided that you have a suitable asset that can be used. Asset refinance can be arranged very quickly, offers a low cost method of finance and can be spread over a flexible choice of repayment terms.

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