Bridging Loans Explained

First of all, you may be wondering why bridging loans are called bridging loans. They’re called bridging loans as they bridge the financial gap, ultimately getting you from A to B for a short period of time. 

Also known as ‘swing loans’, ‘gap financing’, or ‘interring financing’, a bridging loan is a short-term loan that can fund your needs until you find a more permanent solution - whether it be an inheritance, the proceeds from a property sale, or any other lump sum of money.

Depending on the lender and your circumstances, you can find bridging loans with terms as low as a few days, or as high as three years. However, most people choose a bridge loan to tide them over a six-month period. 

Bridging loans are a great choice when you’re buying a property but awaiting the funds from a property sale.

This essentially means that you’re the owner of two properties - and also have bridge financing debt. However, it can take a while to sell a house - so often, bridge loan financing is the only option if you want to buy a new property. 

It can be extremely inconvenient if a buyer drops out of a property sale, but a bridging loan can tide you over until you find a new buyer, covering your debts or the costs of a new property. This means that you don’t have to wait for the sale of an existing property before purchasing a new one.

Another reason why you may need a bridging loan is if you’re waiting for a long-term loan to reach your account. Long-term loans can take days to hit your bank account, so you may opt for a bridge loan for a few days until you acquire these funds.

It can take weeks for a regular loan to hit your account, but usually, you’ll receive your bridging loan within one to two days. However, it’s important that you have an exit strategy in place (you have funds coming soon).

This commercial finance option offers you a short-term solution until you acquire a more stable form of finance or further payments. Read on to learn the different types of bridging loans. 

Open Vs Closed Bridging Loans 

There are two forms of bridging loans - open bridge loans and closed bridge loans. Open bridge loans allow you to borrow funds without a fixed date for repayment.

Despite the fact there is no fixed date agreed upon with your lender, you’ll usually be expected to make a full repayment within a year. 

Closed bridge loans, however, involve a final repayment date. You’ll agree on the repayment date with your lender in advance - and in terms of property, it’ll typically be the date you plan on exchanging contracts. 

With both forms of bridging financing, it’s important to provide evidence that proves you’ll be able to repay the funds.

Your lender will require information on how you’ll pay the bridge loan - whether it be by releasing equity on your home (known as equity bridge financing) or by using a mortgage. Having a strategy in place to repay your bridge loan can prevent your credit rating from being affected.

Eligibility Criteria For Bridge Financing

It’s important that you check whether you’re eligible before applying for a loan. You’ll need to provide the lender with proof of income - and if you’re opting for a commercial or company loan for a new business venture, you may need to provide a business plan. 

The outcome of a bridge loan doesn’t depend solely on your credit history - however, lenders will run a credit check. Your credit history can determine the interest rates you’ll be offered. 

Each lender will have its own eligibility requirements. That being said, pretty much all bridging finance lenders require you to be over the age of 18 and to have an address in the UK.

The amount of the loan usually has to exceed £10,000 - and you’ll need to provide proof that you’ll be able to repay the loan.