Small bridges: The often overlooked five figure sums

Small bridges: The often overlooked five figure sums



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With the completion of multi-million pound deals continually making headlines, the assumption that bridging loans offer a financing option to primarily facilitate large transactions is common.

Whilst a bridging loan can provide a niche solution to those requiring funds for property purchases, costly developments and refurbishments, as well as large tax bills for example, this type of finance also fulfils a role for less expensive ventures.

With this in mind, B&C thought it was about time that the role of smaller bridging loans took the spotlight, highlighting that bridging finance can also be an extremely useful tool for those needing quick funds for more moderate purposes.

We asked numerous lenders within the industry to tell us a little more about what proportion of their loan book is used for small loans, in an attempt to get to the bottom of how common smaller loans really are, and establish whether lenders’ protocol for completing a deal for below the six-figure mark varies from their typical large loan processes. 

Telling us a little more about the nature of such loans, Gary Bailey, Director at Blemain Group, explained: “Our underwriting processes are the same for loans from £26,000 to £80,000, as with any other bridge. The uses of smaller bridges are the same as for larger ones such as buy-to-let, renovation, unexpected business bills etc. We would also ensure the loan meets the needs of the customer and was affordable.” 

Following a similar perspective with regard to practices adopted for smaller loan sizes, Duncan Kreeger, Chairman at West One Loans, added: “Stringent diligence checks are carried out on all cases, irrelevant of the loan amount – the process is the same. The interest costs too are generally the same regardless of the size of the loan.”  

We asked Duncan to elaborate further on the proportion of business West One Loans currently dedicates to these kinds of loans; he said: “Less than one per cent at £30,000 and just over one per cent between £30,000 and £60,000, with a popular use to pay the deposit to secure a property at auction.” 

Although small loans may make up a relatively small proportion of a lender’s loan book, they can constitute a fairly high percentage of their business in terms of ‘leg work’ as the processes involved do not tend to differ.  

Explaining this further, Steven Nicholas, Chief Executive of Tiuta plc, told B&C that small loans only constitute 1.5 per cent of the overall funds Tiuta lends. As a result, Steven highlighted that the size of the loan has little correlation to the volume of business for such purposes.  

He explained that for small loans, which Tiuta has classed as under £100,000, “the figure stands at 25 per cent of loans completed” across their entire loan book.

Steven also stressed that diligent processes are not compromised for lower value loans: “Every loan goes through the full underwriting procedure and due diligence does not change irrespective of the loan size.” 

Yet regardless of whether or not smaller loans require the same level of diligence, some lenders have actually carved their niche in the market by providing small loans. Yasin Patel, Director of Mayfair Bridging, explained that this is an area they have specifically targeted over the past few years.  

He said: “We have found that the majority of new lenders focus on large London deals and we see the small deals as a niche which Mayfair specialises in. The majority of Mayfair’s business is small loans under £150,000. 

“The actual bridge does not differ much, just the geographic location of the property. Lending smaller loans does not mean that there is less due diligence – the amount of money is irrelevant and we asses each case the same. We do all the checks possible to ensure that the borrower can exit the bridge comfortably, either via refinance or sale.” 

We asked Yasin whether he thought bridging provided value for money to customers for such small loans, to which he responded: “Smaller loans do not mean that the rates are lower, the rates remain the same. However, the monthly payments are smaller due to the size of the loan which makes it more affordable.  

“We don't know many borrowers that can service a bridging loan for £1 million but the majority of our borrowers for the smaller loans can service the loan on a monthly basis.” 

Despite processes largely remaining the same for small loans, with much lower Loan-to-Values, we asked whether formal valuations are an essential part of the underwriting process.   The responses from all the lenders we asked were unanimous – all agreed that a valuation was still needed in order to process an application and provide a plausible exit, regardless of the size of the loan. Duncan Kreeger said: “We require a valuation report, irrelevant of the loan size. Since the diligence and process are exactly the same, the turnaround is no quicker.”

And so, it would appear that from a lender’s perspective the processes involved in small loan transactions are neither quicker nor less complex – in fact, they can prove to be just as difficult to complete as larger loans and will undoubtedly produce much less interest revenue from the client.  

However, it is important to be aware that there are some bridging lenders who specialise in offering small loans for the right types of client. Even though bridging can be an expensive form of finance, it does in fact fulfil a niche and offer liquidity when the mainstream banks are reluctant to fund even the smallest of transactions.  

Echoing this sentiment, Steven Nicholas added: “Clearly, bridging finance generally comes at a higher rate and cost than traditional mainstream finance, yet in this day and age with many lending avenues closed, bridging is increasingly fulfilling and satisfying a need that traditional loans are not able to.” 

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