At Together, our personal bridging loans range from smaller loans for home improvements ahead of a sale, to £2.5 million for the purchase of much larger properties. And after applying for one of our short-term bridging loans, we can have the funds in the borrower’s account significantly faster than a traditional mortgage or large loan from a high street bank.
As well as the speed and convenience that bridging loans offer compared to mainstream mortgage products, they can also be extremely cost effective thanks to the way their interest payments are structured.
This can either be at the end of the 12-month loan period, or earlier if you are able to do so. At Together, we don’t hit you with any early repayment charges, so if you decide to pay off your loan early, the amount of interest you pay will be significantly reduced, making bridging loans even better value.
So, to get the most financial benefit out of a bridging loan, it’s important to have a clear exit strategy in place, knowing exactly how you plan to pay off your bridging loan as early as possible before the 12-month loan period is up. Ultimately, the quicker you are, the more money you will save.
The top three exit strategies for bridging loans
Sale of a property
By far the most common way to pay off a bridging loan - known as an “exit plan” - is through the sale of an existing property. You can take out a bridging loan to help you buy a new property in auction or to break a stubborn housing chain, purchasing a new business property now with cash while waiting to sell your current property, using the proceeds to pay off the bridging loan on completion. Alternatively, you could take out a bridging loan to buy and refurbish a new property before selling it for a profit within the 12-month loan period.
However you plan to use your bridging loan, the nature of this product gives you plenty of time to sell an existing property to ensure you have enough funds later to pay what is owed before the loan’s redemption date.
Conversion to long-term financial arrangement
We often approve bridging loans for borrowers looking to buy a property through an auction process. In such instances, winning bidders are required to act fast, paying a 10% deposit immediately, before paying the remaining cost of the property within 30 days.
Unfortunately, most traditional lenders can’t approve a mortgage in such a tight timeframe, taking on average 8-12 weeks to deliver the required funds to your account. As a result, many auction buyers take out a short-term bridging loan instead, since this can be approved (with funds received) within 28 days, in line with the auctioneer’s payment terms. Then, once the property has been purchased, these owners look to convert their short-term loan into a longer-term financial arrangement – i.e. a traditional mortgage – using that to repay the bridging loan before interest on the loan starts accumulating.
Redemption of loan with operating cashflows
Many small business owners use bridging loans as a form of short-term finance to tide over their company - for example to pay staff wages, rental costs or buy new stock to fulfil a big order – while they wait for a large overdue invoice to be paid.
Late payment of invoices is a significant problem among the small business community, with many large customers often enforcing lengthy 60 or even 90-day payment terms on their suppliers, which can be crippling for a small company’s cashflow, causing their operations to grind to a halt. Bridging loans can prevent this from happening by propping up a business over the short term, with the loan paid back in full once the overdue invoices have finally been settled.
