Bridging Loan Finance

Have you thought about purchasing a property at auction but were worried that your bank would not be able to get the finance in place quickly enough, and you would lose your deposit? Or you were unsure whether to bid due to uncertainty around what level of finance your bank could agree for you, as the process of credit assessment and valuation employed by the major banks is quite a slow process?

Well, there are now other options available to you in the marketplace apart from just the main high street lenders. Arranging a facility via a bridging loan company could mean no more missed opportunities at auction, and a lot less stress while waiting for the transaction to complete.  Whether you are a first-time buyer or an experienced property investor with a large portfolio, you can bid with the knowledge that you can complete your purchases in a timely manner. 

Purchasing a Property at Auction

When you are purchasing a property at auction you need to be able to move quickly to secure the purchase. Auction houses usually set a 28 days completion date from winning the auction to when the purchase needs to be fully complete.  If you are unable to complete the transaction within the allotted time, then you risk losing your deposit (normally 10%) that you paid at auction to secure the property.

These tight turnaround times can sometimes feel near impossible from traditional lenders. However, with the right finance company, with experience within the sector, these can be easily achieved as they have the appropriate systems in place to assist you. 

What Details will a Bridging Loan Company Need?

If you are unfamiliar with Bridging Loan Finance, a loan will normally be secured against a charge on the property that you are purchasing. The lenders will need the details of property that you are buying, such as type of property (i.e. Residential or Commercial), details of your income and expenditure, details of any existing facilities you have in place, what type of charge is being offered (i.e. first legal charge or second legal charge), the term of the facility that you are looking at and, if you are buying the property at auction, the lot number.

Providing this information in advance allows the bridging loan company to assess you prior to the auction and advise you what facilities can be made available to you

If you already have a property portfolio and you can provide the lenders with the details before the auction, then they may be able to get a full agreement in place before the auction. This will give you the buying power and confidence needed to bid for the property that you desire. Furthermore, you can take advantage of the fact that they borrow against the value of your existing property, not the new property’s purchase price; this will provide you with greater flexibility.

Benefits of Using a Bridging Loan Company

The benefit of using a bridging loan company is that they can act quickly. They will normally work with experienced valuers and solicitors that have experience in the marketplace and who are used to working quickly. This will allow you to complete on the property within the auction house’s 28-day timescales. 

Just to highlight the benefits of using a bridging finance company: –

• Quick Decisions
• No Property Chains – facility could be arranged quicker than standard mortgages
• Have credit pre-approved 
• Fast Completion
• Able to purchase property at auction, secure a site at a lower market price.

Different Bridging loan companies will have slightly different terms, but to give you the basic outline of the terms that you could expect from a loan:

• Minimum arrangement fee 1%,
• Maximum LTV 75%
• loan term 3 -18 months
• Loan amounts from £100k 
• No exit fees. 

As the name would suggest, a bridging loan is a short-term facility; the loans are normally agreed for between 3 and 18 months. This will allow you to purchase the property, but also gives you time to put in place an existing plan, such as selling the property for a profit after refurbishment or refinancing to a mainstream lender on traditional terms, as you will then have the time to do so.

What will Bridging Loan Companies Loan for?

Bridging loan companies are also willing to lend for reasons other than just purchasing a property at auction, they will also lend for things such as tax payments, buy to let investments, land acquisitions and business expansion or purchase. 

Bridging would also be useful if you were to purchase a residential property and wanted to convert it to business use. Planning permission would need to be granted on the site, which can take time and you could risk losing out on the property. By using a bridging loan you could purchase the site while you waited for the relevant permissions to be granted.

This scenario can certainly become a factor for dentists purchasing a freehold property when setting up a squat practice or an established principle, where they are hoping to move from their existing site.  You may have found the perfect location, on the high street, good parking and low competition, but if it doesn’t have the correct usage then the seller may not wait for planning permission. With a bridging loan you could secure the property and then re-finance the site onto a standard business loan once you have put the relevant D1 usage in place. 

The demand for more flexible/alternative finance options is ever increasing in an environment where banks continue to tighten their lending criteria. Funding is available to individuals and companies and the bridging lenders will release the funds quickly and on competitive rates and terms. 

Reviewed By:

Nigel Crossman

Head of Commercial Finance

Nigel is a former banker and head of commercial finance at Samera. He specialises in raising finance, negotiating deals and structuring finance applications for healthcare businesses.

Dan Fearon

Finance Manager

Dan is a former banker and the head of our dental practice sales team. He specialises in asset finance for healthcare businesses and dental practice sales.

Arun Mehra

Samera CEO

Arun, CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, financial directorship, squat practices and practice management.