Bridging loans is a kind of short term funding, interim financing and stop gap measure that helps the completion of an acquisition such as a property in cases where the purchasers fund line or source has come short in terms of time and value. It is taken out pending the approval of a long term financing method with a larger value. Once the permanent means of financing has been approved, it will then be used to take out the bridge.
As its name suggests, it helps bridge or connect the sale and the main fund source in order to close the transaction. This happens since many big ticket sales will require what we call a down payment. This is a certain percentage of the total selling price which must be provided to the seller at the point of sale with the remaining balance payable in installments over a period of time.
Since the acquisition of a property will require quite a huge sum of money, a combination of fund sources can be used by the buyer which includes but are not limited to future and present income, savings, investment profits, sale of other assets and even credit like loans and mortgages. In the event that these fund sources could not be available at the time of need or although available are short of the required amount, bridging loans may then be taken to take its place in the mean time. As mentioned earlier, it will then be closed as soon as the permanent financing mode has been made available.
Of course the use of such type of interim financing will ultimately depend on the buyer’s decision. There are consequences to not using it when you should have and the worst of that would have something to do with opportunity losses.
Such losses can be suffered immensely for a business related endeavor, for example. Location is a huge factor when getting an asset for one’s business. Losing a great deal and a prime asset can be detrimental as it equates to lost opportunity which can come with material costs as well. Most properties will also cost less today than they will tomorrow. On the point of view of a residential property, not using bridge loans when all signs point that you should can make you lose that dream home you have been eyeing upon.
Bridging loans are a form of interim financing that helps buyers meet their needs in times when their permanent source of funds do not come in time or for some reason are delayed. Such is the reason why they have been named as such. They help bridge the purchase and the fund source and are therefore a stop gap measure. Despite being present and popularly used for a long time now, there are still a number of misconceptions revolving around bridge loans and we are here to bust a few of them in order to set your facts straight. Read on further and get to know what these are.
1st Misconception: Bridge loans are more expensive.
First of all it is wrong to compare a bridging from a regular loan because the two are nowhere the same. First of all the former is not to be considered expensive. Although they come at a slightly higher interest rate, such is only equivalent to the risks involve don the part of the provider. Remember that they are designed to work on a short term basis and when used properly they will not be pricey.
2nd Misconception: They are only used for property acquisitions.
They can be used for pretty much any other purpose where needed. They are not solely created for asset purchases. The fact however remains that this is the most popular sue for them.
3rd Misconception: Your credit history does not matter and will not be checked.
Just like any other forms of credit, you will be asked to provide the requirements upon application and before approval. The financial providers will still look into your credit history. The only difference is, this may not be as tedious as that required when applying for traditional bank loans and mortgages.
4th Misconception: They are considered a second debt.
In essence they may look like one but they are more of a loan anticipating loan. Although they provide for the needed cash when the one you have has been stuck or is deemed unavailable at the moment. They are then to be closed or paid out by your permanent funding once they arrived so they will not have the effects of a second debt.
5th Misconception: Paying for them is tedious.
As mentioned in the previous item, it is quite easy and flexible to close out your bridging loans. You can opt to wait out until your permanent funding comes out or you can pay it earlier should you acquire enough resources to do so.
Commercial bridging finance is one effective option used by several entities in order to aid and support their asset acquisitions in the event that their main line of fund has not been made available in time. Also referred to as bridge loans, these provide buyers an option to take hold of their acquisitions before someone else eyeing the same property does.
Essentially what happens in a commercial bridging finance is that the buyer seeks to fund an acquisition by pooling resources over time through savings, restricted cash or retained earnings, by getting a loan or by selling of a redundant, useless but functional asset. However, there are situations when these sources have not been completed yet and are therefore not available at the moment. This is where the bridge loan steps in. In most cases they provide for the upfront costs or the down payment and depending on the arrangement to the first few installments. When the main line of fund is already available such is then used to repay the bridge loan as well as the remaining balance on the property.
It is used for many of its benefits with two of which as its most sought after advantage as follows:
TIME SAVINGS – Since we are talking about commercial properties these are to be used for an entity’s operations therefore a bridge loan enables time savings and aids in operation timeliness and continuity.
COST SAVINGS – Because real estate asset prices fluctuate and often rise up as the days progress, acquiring one at an earlier point can enable cost savings.
Despite the benefits that it boasts about commercial bridging finance has to be used the right way otherwise one would not be able to enjoy such advantages. Below is a brief list of major mistakes when using them.
- They are short term loans so use them as is. Do not treat them as your long term funding scheme like a regular loan or they will end up being more expensive than you expected.
- Another mistake is your inability to plan for your exit route. How do you plan to pay for it? Will you use your loan or save up from your income? Planning is necessary as well as proper resource allocation.
- Lastly, a common blunder when it comes to commercial bridging finance is transacting with the wrong firm or financing agent. You need to scrutinize your bridge provider well.
Bridging finance has been largely used by many home and residential buyers and even landlords and property for lease investors but does it benefit businesses too? Yes it most certainly does and quite similarly in fact. Read on and get to know the said perks.
But first, what is it? Bridging finance is a type of short term loan that provides real estate buyers with a fund to be used as down payment in the event that their main source of fund is not yet available. This is the case such as when an old property that has been put up on sale has not been bought yet and the proceeds would have been used to pay for the purchase. Another is when a bank loan is still being processed. Basically, it fills in the gap between the initial payment and the main fund line. Now let us proceed with its benefits for companies and businesses from alternativebridging.co.uk.
It allows for faster acquisitions. No more waiting time is going to be stretched. You can get hold of the property now and use it now. Business is all about efficiency and that entails time.
It supports continuous operations. Assets are used by businesses for their operations. They may choose to use it as a branch, an office, a warehouse or any other means they need to in line with their operations. Because bridging finance makes the acquisition faster, it supports continuous operations and cuts down any halts or delays.
It cuts opportunity losses. Down payments are vital when it comes to closing the deal with a real estate broker or seller. Should the initial buyers be unable to provide for such within a given period of time, the next party in line would be considered. Assets in the real property market are hot commodity especially if they are within a prime location. This is what business owners want because a prime location means better market reach and therefore better product and service exposure and access to customers. These properties have many buyers eyeing them and if one is not fast enough, you could lose a really good asset.
It enables flexible payments. Companies may opt for any means of repayment that they find comfortable and beneficial. They may choose to pay out the bridging finance loan using pooled funds as they become available or use part of the proceeds of the sale of their recently sold property or the loan that has lately been approved. Plus, because it’s short term it will only go on for a definite and squat period of time.
Property bridging finance is nothing new but many people still feel foreign about it. Worry not as we are here to clarify those tangled ideas. When it comes to property acquisitions it is important to know what your options are and get to know each one in depth. In this case, we’ll talk about the bridge loan.
Property bridging finance has been used as a gap filler or a bridge to connect the main or permanent source of cash to the required down payment by the sellers or brokers in order to close the sale. This is done in cases when the loan or mortgage applied for is yet to be completed or the proceeds of the sale of an old asset have not been realized yet.
In most cases, the use of such bridge loan happens in this manner:
- Loan Application or Sale – Initially a buyer would apply for a property loan or mortgage to a bank or any other financial institution. The process involved from application to approval can take some time and are not readily available. If a mortgage is not involved, an old property may be put up for sale or lease.
- Potential Property for Purchase – A property that interests the buyer has been made available for sale or has been made known while the credit applications is still ongoing and while the proceeds of the sale or lease has not been realized.
- The Down Payment – In order to close the deed of sale, a down payment or initial asking price has to be paid first with the balance payable in installments or in full depending on the written agreement between buyer and seller.
- Use of a Bridge Loan – To provide for the said down payment, a bridge loan is acquired to fill in the cash gap.
- Sale and Use of Property – The initial payment closes the deal, papers are signed and the property can now be used by the buyer as he wishes may it be for residential, commercial or industrial purposes.
- Availability of Permanent Fund Source – The permanent source of funds then becomes available and complete.
- Repayment of the Bridge – The repayment of the property bridging finance can be done in many ways. One is when the borrowers have gathered enough resources to provide for it. This can be before or once the loan has matured. Another is by using the part of the proceeds of a loan, mortgage or property sale and whatever else is remaining to pay for any balance left.
Businesses use commercial properties or assets for different reasons. Oftentimes these are used as office space, a branch or a store location. Nonetheless, such acquisitions are a sign of expansion, growth and better market reach. Many people assume that with the profits of businesses, they can simply acquire such assets with the outright use of cash which is obviously wrong. Many companies, small and established alike restrict cash and retained earnings for various purposes and they too resort to debts in the form of payables and other corporate liabilities which are to be paid out as inflows from sales come in. The said loans are often in the form of bank loans, commercial mortgages which are long term and commercial bridging finance which is short term.
Many people are already familiar with the first two loans so let us get to known bridging finance and how it helps businesses with their commercial asset acquisitions.
First let us define commercial bridging finance. Basically they are bridge loans but rather than used for home and residential real estate properties they are more directed at corporate assets that are to be used for operations. The only difference is the type and purpose for the asset. That’s as simple as it gets.
Their name has been coined as such they are used to bridge, fill and connect the gap between a commercial asset’s initial down payment and its permanent source of funds like a loan or mortgage. This is why they have been described as a loan anticipating loan and are also called a caveat loan.
It also gives out the same benefits. For example, take a restaurant chain who is eyeing a specific property at downtown metropolis. It has some funds restricted for an acquisition but such would not suffice and so a loan has been set up however the property was put on sale even before the credit source has been made available. A good commercial property is a hot commodity and if one is not quick enough to act, someone else will close the deal. It saves up time and cuts down lost chances.
Additionally because they are short term, they can be easily repaid using the permanent source of funds as soon as they have been made available. Commercial bridging finance therefore aids in quick acquisitions and therefore supports the continuous flow of operations.
For many home buyers whether you are a bachelor flying solo, a career woman living with her best friend or a family with kids and a pet, it is important to be distinctively wise and extremely smart when it comes to choosing the funding method for a real estate acquisition. Are you planning to use up your savings? If you have indeed been saving up for one then by all means use that carefully banked money for its intended purpose. Are you planning to sell an old property or even the current one you’re living in and use its proceeds as payment? Maybe you have applied for a loan or mortgage? Will you need bridging loans?
What are bridging loans? That is a common question for many people who are not as versed or experienced in the industry of real estate. Loans and mortgages are quite familiar but this one may be a little foreign to many. How does it work then and what are its benefits
Bridging loans are basically short term and act as a cash gap measure that connects the down payment with the actual permanent source of fund that is still yet to become available as is the case when waiting for buyers on a property or the period of approval for a loan. Thus, they are known to help save up on time and hasten acquisitions.
Next, they allow buyers potential savings. Real estate prices can go up on a regular basis some daily, others monthly while most yearly. This is also affected by the location and nearby structures. If you notice, many properties have been sold at really cheap prices years back and now they have been going up. If you can purchase now while the price is still at a range that is affordable and workable for you then grab it. Additionally, many home buyers who sell up their old properties may find it a need to rent put a space in order to free up the one they are selling. If you use a bridge loan to close the deal then you can immediately move into the new property while the old one is up for sale. No more renting needed.
Lastly and a very obvious one at that, bridging loans allow home buyers to close the sale without wasting any opportunities. We all have our dream houses, apartments, flats and condominiums. If you’ve found it and it comes with a good price then why waste it? Remember that you are not the only one in search for a beautiful property.