Commercial bridging loans and its siblings were born out of a need, that which has been brought about by differences in time. Considering how much resources it takes to buy real estate properties both then and now, timing is a crucial factor as the availability of such resources can make or break a great opportunity. And really, who wants to lose their chance?
It’s common knowledge that money is hard to come by. Aside from having to work hard for it, it takes a lot of waiting to pool them up as well. Where income options like salaries, retained earnings and sales take a while to pool or reach a certain threshold, credit takes time to arrange and even that does not guarantee an approval or cash release. But buyers need immediate resources especially since real estate acquisition requires pre-purchase expenses and this short term liquidity needs are what commercial bridging loans provide for. But what are they specifically? We’ve listed them down.
PROFESSIONAL FEES – Buying an asset would mean having to look into various legal requirements and documents calling the need to hire a lawyer or solicitor. There’s a real estate agent or broker for those that require professional help in looking for the right asset too and not to mention fees for a chartered property surveyor who shall examine and assess important property related matters such as market value, condition, legal and ownership issues, safety concerns, depreciation, value appreciation and more.
SECURITY DEPOSIT – This is the price paid to a seller in order to secure a hold on the asset while for long term financing like a mortgage, a bank loan or proceeds from a sale. This prevents them from selling the asset or offering it to another buyer within a stipulated period. In some cases, this is referred to as an earnest payment.
DOWN PAYMENT – This is the percentage of the entire price of the commercial asset which has to be paid upfront and in cash, oftentimes around 20% of the entire list price. Failure to do so creates an opportunity cost.
RESEARCH EXPENSES – Simply put, looking for the right commercial asset takes a lot of work and even financial resources. This applies regardless and whether or not one chooses to look on their own or hire a professional to do so.
EMERGENCY NEEDS – But apart from pre-purchase, commercial bridging loans may also be utilized in pressing situations such as when one needs immediate cash to prevent a foreclosure or when immediate repairs and maintenance have to be done.
We all love a good deal and it is for this reason that we all tend to gravitate towards options that are not only at a reasonable price point but also one that covers our needs and cones with a lot of benefits. It’s therefore not surprising that bridging loans have become quite the superstar in the world of finance. But then again not everyone knows about or is fully acquainted with them to even realize and acknowledge their perks. To fix that dilemma we’ve made a list just for you. Check it out below.
They are short term in nature. Unlike other credit options, bridging loans will only span between two weeks up to two or three years at most. With this comes lesser burdens and risks.
They work on the interim. This means that they are taken out pending the arrangement and/or availability of a main fund line, often a bigger and permanent financing which by nature mostly take time to either pool (e.g. income, sale proceeds, and salary) or arrange (e.g. bank loans and mortgages).
There is no restriction to their use. The funds taken out via a bridge arrangement may be utilized in whichever manner users deem fit. There are no restrictions imposed as to how they are to be spent which is oftentimes observed in other alternatives in the market, for instance in the case of a loan where it may only be spent on a specified and approved expense account by the creditor.
Payment options are flexible. Users have the liberty to choose between closing it at maturity date or before. The former uses part of the main fund line to close the bride while the latter is one that seeks savings on interest expenses, an option not available in other financing alternatives.
They help hasten transactions. Bridging loans were named as such because they connect the gap between a need coming due and one’s bigger and long term source of cash. Since many transactions require a pre-purchase costs or where expenses will have to be spent prior to a closed deal, the immediate funds it provide allow people to grab the opportunity the soonest possible and before anyone else does.
They are immediate. Perhaps one of the most celebrated benefits of bridging loans are their ability to be processed or arranged as well as released within a short amount of time. Given that they were designed to provide for short term liquidity needs, speed is their middle name. www.alternativebridging.co.uk
The rise of commercial bridging finance is no longer a surprise. Given its long list of benefits, it is easily any entrepreneur’s favorite and this applies regardless of the type of industry or the size of a business.
But even something as effective and beneficial as commercial bridging finance will cease to be the hero that it is if used incorrectly. That said we’re here to warn you about when and how not to utilize it. Read up and be forewarned.
Don’t use it for what it isn’t. With anything else, a good tool will prove futile if used for something which it wasn’t designed for. Commercial bridging finance is first and foremost a temporary borrowing. This means that it is one taken out for a period of two weeks to three years to fulfill immediate short term liquidity needs. It should not be used to replace a long term credit or any long term fund source.
Why? The method falls under the category of interim financing. This means that it is one used to provide for immediate needs that must be fulfilled to facilitate a transaction while one’s main cash source, say a mortgage or an upcoming payment, is still on its way. It works as a stop gap measure that allows entrepreneurs to grab an opportunity before it expires or before anyone else beats them to it.
Additionally, commercial bridging finance has a slightly higher interest rate compared to mortgages, bank loans and similar long term borrowings. This is because there are more risks assumed and absorbed by the bridging provider. However, this does not mean that they are more expensive. Gross-wise, they are cheaper given the short amount of time compared to long term credit which can spread up to fifteen or twenty years. If the temporary loan is used in the long term however, that fact will cease to exist.
Now let’s take a closer look at its name. Bridging loans can be used for a wide variety of purposes but in this case, it is used in the purchase or acquisition of commercial properties. We can all vouch that such investments take a lot of financial resources and that these can be hard to pool. It takes time. Even the arrangement for credit takes considerable time. That said commercial bridging finance funds should be used only in all things pursuant to the acquisition. It should not be allocated for other purposes to avoid both wastage and shortage of resources.
Everything has its purpose and so does property bridging finance. This financing method has gained quite a lot of prominence over the years with the real estate industry describing it as a very powerful tool for buyers and investors. It has, in a way, changed the landscape forever and gave acquisitions a new perspective. But when it is best utilized?
#1: Pre-purchase Needs and Acquisition Requirements
Property bridging finance can be used in many ways and perhaps its most popular application happens in the initial stages of a real estate acquisition. Most people would make the mistake of assuming that they only have to worry about the price of the asset as it’s listed on a selling advertisement. Let’s take note that there’s more to every property’s price tag than just its list price.
There are a number of initial or pre-purchase expenses that need to be fulfilled before the transaction is set to roll. For example, one will have to spend some resources in looking for the right assets and coming up with a shortlist of the best ones. Hiring professionals such as lawyers for legal requirements and surveyors for asset examinations will cost some too. Moreover, sellers will require a down payment before anything else and if one needs to buy more time to come up with the cash for that, a security deposit will be made to prevent others from stealing the opportunity right from under one’s nose.
But hey, we’re just getting started. We’ve got two more applications on this list.
#2: Foreclosure Fix
Missing out on installment payments for one’s house, land, building or any other real estate asset will garner a foreclosure. Depending on the agreement signed into by the buyer and seller, a certain number of failed payments will end up in a foreclosed property and nobody wants that. In cases where this is imminent and one has to come up with immediate resources to prevent it, a bridging loan becomes a very powerful and effective tool.
#3: Refurbishing and Renovation Needs
Bridging loans are also fairly used by people in their renovation projects especially when the refurbishing and updates done are in line with a planned sale or lease. Because no buyer or tenant will want a dilapidated or sad looking investment, owners need to raise the bar high and one way to do so is by renovations and upgrades and we all know these projects can rake up serious cash. http://www.alternativebridging.co.uk/development/
Every investor wants to make the most out of their purchases and we don’t see why not. It takes a lot of time, resources and hard work to find the perfect asset for a sweet deal. But we all know how acquiring real estate can be such a taxing job. Luckily, there’s commercial bridging finance that comes to every entrepreneur’s aid.
But what is it and what makes it the perfect weapon of choice? Simply put, commercial bridging finance is a tool that helps investors to acquire their chosen assets faster and more effectively. It provides a short term or temporary loan that fulfills or satisfies short term liquidity needs aka the pre-purchase costs necessary to the transaction pending the availability and/or application of a permanent and often bigger financing (e.g. bank loan, mortgage, and sale proceeds).
Because time is of utmost importance when it comes to real estate and commercial ones for that matter, buyers have to act fast or risk losing the opportunity to another interested party. Remember that the better the asset is, the more heightened the competition becomes. We all want a good deal and anyone will make the move the soonest they can.
The security deposit, the amount paid to the seller as a security that prevents them from selling the asset to someone else for a period of time, is crucial and so is the down payment without which there will be no sale. Let’s not forget about the other pre-purchase expenditures such as the survey costs, research expenses and professional fees to name a few.
These upfront costs are so immediate in nature that many buyers often miss out on an opportunity because they fail to have the money when they need it. But because commercial bridging finance is designed to work for these situations, it is way faster to arrange and does not come with as much fuss in terms of documentary requirements.
Moreover, commercial bridging finance is temporary or short term in nature so it does not pose burdens or risks for a prolonged period of time like its long term counterparts. Plus, providers offer a flexible repayment scheme where users can opt to pay prior to maturity thereby reducing the interests or at maturity which is the date by which one’s main financing has been released and which shall be used in part to close the bridge previously taken out.
Bridging loans are described as a stop gap measure that prevents opportunity losses by providing a temporary loan for short term liquidity needs pending the arrangement and arrival of a permanent and bigger source of finance.
Confused? Allow us to explain how it works by virtue of an example. Let’s say that Rob and Anna are planning to buy a new house for their growing family. They both have savings but it’s not enough so they decide to fund the acquisition either by selling their current house or getting a mortgage. The trouble with either option is that they take time. The former takes time to wait for a buyer. No one’s really sure as to when the asset gets sold. As for the latter, processing it or any similar credit arrangement will be meticulous and time consuming.
Of course, Rob and Anna still push through. Besides, it’s a given fact for both options. Now the problem arises when the house they wish to buy gets a lot of attention from other interested parties. If they don’t provide for the down payment or at least a security deposit, they will lose their chance. To avoid that they’d take a bridging loan.
Because it’s faster to process and cash is released almost immediately unlike other financing options, it serves as the perfect method for short term liquidity needs as mentioned. Moreover, payment comes in two forms which makes it all the more flexible. How? Let’s check the two kinds of bridging loans as follows.
The Open Bridge
You see, bridging loans providers allow borrowers to choose their mode of payment. Users may opt to close it before it matures or as it matures. With an open bridge arrangement, the maturity date is not stipulated but is rather and often dependent on the time by which one’s main fund source (e.g. sales proceeds, mortgage, bank loan) becomes available.
The Closed Bridge
A closed bridge on the other hand stipulates a date which can and may also be the time by which one’s permanent financing becomes available. This is often agreed by both parties at the onset and is stipulated in the terms and conditions of the contract.
As to which of the two types of bridging loans should be preferred ultimately depends on users. At the end of the day, we have varying needs and circumstances so it’s a must to choose an option that complements you best.
In the event that an immediate need comes rearing its head, we’re lucky to have something called bridging finance. But what is it and what benefits does it bring? If you’re new to it, we urge you to read on. This financing medium beloved by the real estate world might just be the lifesaver you’ve been looking for.
A term given to a stop gap measure known for bridging the fund gap brought about by timing obstacles, bridging finance is a short term loan taken out to provide for the immediate short term liquidity needs for asset acquisition transactions. Its popularity and widespread use is due to its number of benefits and below are some of them.
Since time is of the essence in the world of real estate, one has to be fast otherwise someone else might grab the chance before you even get close to it. Since sellers will always require down payment and/or security deposits to be made, this can be challenging for those that have their funds pending. With this financing method, we can eliminate the opportunity losses.
Unlike other types of credit, the use of a bridge provides quite the flexibility. This is because borrowers have two repayment options to choose from and they can favor whichever one suits their needs and capabilities best. As the first option, one may choose to close the loan prior to its maturity or as early as one deems fit and is capable of doing so. The second is where one may opt to repay upon maturity which is oftentimes the day when one’s permanent financing is made available.
Designed to fulfill short term liquidity needs, bridging loans are temporary which makes them less burdensome as compared to other credit options in the market.
Some people choose to finance their acquisitions through credit such as in the form of a mortgage or a bank loan. Others on the other hand opt to sell the current asset they’re using and use those funds to buy a new one that suits their current needs. When that happens, they’ll have to evacuate the current space while waiting for a buyer thus the need to temporarily rent. This creates added cost. By using a bridging finance, buying the new place becomes possible even if the current one is still waiting for a buyer thereby cutting the need to spend on rent.