Many people have a notion that bridging loans are only available to bridge the gap in a property transaction. There are many other ways to use this loan. It is a great financing option for business owners who need access to funds fast and have available equity in a property. This guide on bridging loans might help you unfold many uses of this short-term financing option.
What is bridging finance?
Bridging finance is a short-term loan that can bridge the gap between time and money when you do not have funds and you require them quickly. For example, you want to purchase some stock for your business but a debtor has been slow in paying you but the stock is a good price so you want to act now. Bridging finance allows you to buy the stock and then when you are paid you can repay the loan. It is one scenario where you can use a bridging loan. Once you receive your expected payment, you can pay the loan off. These loans are secured by real estate and are normally for a term of 1 – 6 months.
The past of bridging finance
Bridging finance was first introduced in the property market in the 1960s. The property market was very different back then and bridging loans could be used only for buying property. People who frequently brought and sold property utilized it to bridge the gap between buying a new house and completing the sale of the current home.
The year 2007 saw a massive change when banks started to restrict lending overnight. It was an enormous opportunity for the short-term lenders to attract business owners who had been let down by the banks. Long-established lenders worked with brokers to bring bridge financing to the next level.
The role of bridging loans in the market
The first mortgage lending rules of 2014 impacted the traditional credit market significantly. Rules were enforced to stop irresponsible lending due to which traditional loans were no longer easily accessible to the customers. It further gave a boost to the bridging loan market.
When the demand of any industry increases, the number of people entering the domain also increases. The same happened in this market, too, as the popularity of bridging loans increased. This financing domain is growing at an impressive rate, with more and more lenders entering every month. People who have surplus money invest in this industry because the long-term returns are super attractive. Bridging loan funding has increased the potential to earn over 18%. It is also a major supporting factor of this sector’s growth in the financing market.
Uses of bridge financing
Bridging finance can now be used for both consumer and commercial use. When buying and selling a residential property bridging finance is a consumer use and is a great way to secure your next home whilst waiting for the existing one to sell. When bridging loans use the equity in a property for any worthwhile business use then this falls under commercial use. In this circumstance the funding can only be used for business related transactions and falls outside of the consumer credit code. This type of bridging finance is offered by private lenders and not the mainstream banks.
The future of bridging finance
Earlier bridging loans had a bad reputation. It was thought to be expensive and a high risky financing option. But now, it appears like a competitive product range, and the market will continue to grow.
Borrowers can see bridging finance as a versatile financing alternative that is no longer restricted to property buying and selling transactions. Analyze your circumstances carefully and then make sure that it is the right option for you. Bridging finance will continue to be a part of the mainstream and private financing market.
These days, many companies are entering into the field of short-term financing, It means an immense growth potential for all lenders and investors. One cannot certainly predict what another financial downturn will bring. But the responsible credit lenders will survive despite all the challenges.