A bridging loan is a short-term funding option aimed at those who own land or property. As the name suggests, bridging loans are designed to ‘bridge’ the gap between your current circumstances and other funds becoming available, such as payment from a customer, or a more long-term loan agreement elsewhere.
A bridging loan is only suitable as a short-term funding option. Prior to taking a bridging loan you need to be sure that you have a guaranteed sum of money in the pipeline which can clear the loan in full. If you are in any doubt about your ability to do this, you should consider an alternative source of funding.
The loan can be taken on either an ‘open’ or ‘closed’ basis – this refers to the period of time the loan is set to run for. If the borrower has a set repayment date in place, then the loan will be taken on a closed basis. Closed bridging loans usually run for a couple of months, or even weeks in some cases. An open bridging loan is for borrowers who cannot commit to an exact repayment date.
Bridging loans are a secured form of borrowing, so you will need to have a high-value asset, typically land or property, in order to obtain this type of lending. The amount you can borrow will be determined by the value of the asset the loan is secured against. You will have to pay interest on the amount borrowed, and there will also be additional fees and charges imposed by the lender.
There are different types of bridging loans available, so you should ensure you choose one that best meets your requirements. Some require monthly payments to cover the interest – others do not ask for monthly payments, but instead the entire sum you borrowed, plus the interest and fees, to be repaid in one lump sum.