The popularity of bridging loans continues to surge, with the value of these loans almost doubling in the last year as borrowers looked to £1.8 billion of short term funding to buy property.
According to the Association of Short Term Lenders (ASTL) total lending increased by 92 per cent in the 12 months up to the end of June 2014.
Preparing your finances before applying for a bridging loan is imperative. Much like going to a bank to apply for a business loan, there are a number of elements you need to prepare before approaching a short-term lender for a bridging loan.
These tips are aimed at helping businesses prepare properly for taking out the loan, whether it’s for buying a business property, paying a tax bill or covering the costs of stock and equipment.
1. The amount
Think carefully about the amount you will need, it’s important to be realistic. With a bridging loan you can borrow anything from around £25,000 to £5million. Don’t overstretch yourself, but don’t under estimate what you need as terms are fixed and it can be difficult to increase the loan value once it’s been secured.
2. The terms
Bridging loans are short term, usually paid back within 12 months so you need to be clear on your exit strategy from the onset. How do you plan to repay the fund over the next 12 months? Also, if you go over the agreed term, you could be charged with penalties and will need to re-negotiate new terms. Look out for lenders which offer flexibility so that if you go over the average loan time, you know exactly what your terms will be.
3. The specifics
What is the loan needed for? There are a huge number of uses for bridging finance, from business and land acquisitions to funding to pay tax liabilities or cover probate delays. You need to have a clear outline to present to your lender on what the money is going to be used for and why the funding is vital for your business now.
4. Trusted sources
If it’s your first time applying for a bridging loan, you may be unsure which lender to approach. It’s tempting to snap up the first offer you come across but always take the time to compare rates and check out the reputation of the firm you are considering using. Use your existing trusted sources for recommendations; speak to either your lawyer or accountant for help.
5. Have your documents prepared
There are set documents you will need to provide for your bridging loan to be processed. Commonly, you will need to have your ID (either passport or driving licence), a declaration of income and copies of your building insurance ready. However, each case is looked at and assessed on an individual basis so further documentation may be required.
Lancashire Mortgage Corporation supplies bridging loans from £25,000, and can cater for a wide variety of income sources including employed, self-employed, Sole Traders, Partnerships, Limited Companies and Retirement Income.
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