Ryneveld van der Horst, Financial Director at Bridgingloans.com

Bridging finance holds its own despite a slow-down on mortgage lending

Over the last few months, some of the country’s top lenders have reacted to the state of the mortgage market by increasing interest rates, 'pulling' deals and some even closing their doors to new business altogether. However many businesses are looking to move forward, and looking for lines of credit that they are able to repay. Companies with good credit history and clear exit strategies for their loans are still able to continue with business as usual because there are lenders with available funds.

Here, Ryneveld van der Horst, Finance Director at Bridgingloans.com, explains how in 2008’s cautious market, the short-term finance provided by bridging loans is helping organisations to meet the financial needs to grow their businesses and property investors to increase their portfolios.

There is often a tendency during the uncertain times of a credit crunch, for companies to be too over-cautious with investments. However, those businesses that aren’t afraid to be enterprising and creative – and take advantage of business opportunities that often present themselves in uncertain times – are often the ones to thrive when the financial climate has an up-turn, which it will inevitably do.

The business proposition
Niche financing options have felt the effects of the credit crunch to a far lesser extent than some other forms of finance, and at Bridgingloans.com, at a time when many organisations are withdrawing funding lines, ours are currently being renewed and extended. At the moment around 60 per cent of bridges on our books are currently property investors looking for funding to increase their portfolio. The availability of bridging loans is enabling individual investors to take hold of some very attractive buying opportunities.

This is how it works at Bridgingloans.com. We provide short-term finance with LTVs of up to 85 per cent, which means that investors who negotiate discounts from vendors can potentially borrow the full amount of the purchase price. For example: a property has a market value of £200,000, and an investor negotiates a discount of £30,000, so he or she has to pay £170,000. Bridgingloans.com will still assess the LTV on the £200,000 market value, so if the investor is entitled to an LTV of 85 per cent, then he can borrow up to £170,000 and cover the whole of the purchase price – thus capitalising on the discount he has secured.

So even though a number of lenders have temporarily shut up shop, in effect creating a ‘wait-and-see market’, there are organisations such as ourselves that are continuing to approve loans for borrowers and businesses who have the right credentials. What’s important is that lenders – whether in the bridging market or elsewhere – are responsible and maintain robust lending criteria. This added level of security is vital, and in the long run will ensure that lenders, businesses and individuals won’t get caught out when it comes to repayment.

Confident lending relies on robust processes
There are a number of factors that enable us at Bridgingloans.com to feel secure about the loans we approve. Our in-house compliance division, which provides robust underwriting, risk management and assessment procedures, gives us the confidence that we’re lending to the right people. Part of our risk management is a planned exit-strategy of the bridging loan on behalf of the customer, which outlines exactly how and when the loan will be paid back.

The only way for everyone to feel comfortable in the current financial climate is to implement transparent processes. It is more important than ever for everyone in the funding process – the banks, the lenders, brokers and also the client – that processes are being adhered to from approval to completion.

Finance for good propositions has not disappeared. A number of organisations, such as my own, have been able to maintain a flow of funds to support our ongoing business plans. In the current conditions, what is important is for brokers and bridging providers to fully understand what the project is that they’re financing and to whom they’re lending the money to. The likelihood is that the market is going to get tougher before it gets better, but with responsible, knowledgeable lending, businesses don’t have to come to a standstill and can in fact take advantage of a difficult situation.