Applying for a Bridging Loan
If you’re thinking about applying for a bridging loan, either for residential or commercial purposes, it’s important to understand exactly what the process involves so you are as well prepared as possible. By doing your homework in advance you can make sure you have everything in place to make the application process as quick and as smooth as possible.
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What's in this article?
In this article we’ll take a step by step look at applying for a bridging loan, what you’ll need at each stage and why it’s important to get support from an expert broker if you want to get access to the very best rates and terms.
While the exact details of the process may vary depending on your circumstances, most applications will follow these similar steps.
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Step one: the initial enquiry
The first step is to make an initial enquiry with a bridging loan broker. It’s always a good idea to do this rather than trying to apply directly as not all bridging loan lenders will accept applications without an intermediary and you risk cutting yourself off from some of the best deals. Do shop around and read reviews to make sure you’re happy that your broker has the right mix of experience.
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Step two: Fact finding
Before they start researching potential lenders, your broker will want to gather as much information as possible about your financial situation and what you’re looking for. This will include looking carefully at your exit strategy to make sure it’s viable.
A bridging loan is short-term funding, normally for around 6-24 months, so your exit strategy is your plan to show how you intend to repay the loan at the end of the term. Without a solid exit strategy you’re unlikely to be able to find a lender to agree to your bridging loan application.
Step three: Your broker researchers lenders
Now that they have a clear picture of exactly what you need and where you stand financially, your bridging loan broker can start to identify the best lenders for you. A good broker will have access to the whole of the market, and should have existing relationships with many of the key players.
They will have access to comparison tools and information that you wouldn’t be able to find as an individual, so they can make sure you’re getting the best deal. They can also be useful to have on hand to guide you through the application process so you know what to expect at each step.
Step four: An agreement in principle
Just as with a traditional mortgage, once you’ve chosen a potential good fit you may go initially for an agreement in principle. This isn’t an obligatory part of the process however, and sometimes it might make more sense to skip and go straight for a full application. Your broker will advise on what’s best for you.
Step five: The lender considers your application
Once your broker has provided them with all the information they need, they will look in detail at your finances, carry out credit checks, evaluate your exit strategy and look at the value of your assets. If they are happy they will make you an offer, conditional subject to a valuation of the property that the loan is going to be secured against. Before the valuation the offer is not legally binding.
Step six: Over to the legal team
If your valuation is favourable and the lender is happy to go ahead, the process is handed over to your solicitor. They should explain the terms of the loan clearly to you at this point to make certain that you understand exactly what you’re agreeing to. Once you’re confident in your decision you can sign the necessary paperwork, entering into a legally binding agreement.
Step seven: The release of funds
When everything is signed and sealed, the funds can be released. These go to your solicitor in the first instance, who processes them and makes any necessary payments before transferring the capital into your nominated account.
Step eight: Repaying the loan
While you may not want to think this far ahead quite yet, it’s important to consider how exactly you want to repay your bridging finance as there are a few different ways to do it. Serviced interest is usually the cheapest overall but it involves making regular payments every month to cover the interest. If you don’t want to pay anything until you repay the loan in full, retained interest and rolled up interest are the two ways of doing this. Each has pros and cons so talk to your broker about what works for you.
Once you’re ready to repay the loan in full, you’ll pay off the original capital amount and, if you’re paying rolled up interest, any interest accrued. If you were paying retained interest, you may be due a rebate if you have settled early. Most, (but not all), bridging loans don’t impose early repayment charges, (ERCs), so in these cases you won’t pay a penalty for repaying the loan before the agreed date.
Although broken down into steps this way it might seem like a lengthy process, it can actually happen very quickly if you have a good broker and solicitor pushing things through efficiently for you. Whereas with a regular mortgage you’d expect to wait weeks, applying for a bridging loan is much quicker. Often you can have money in your account within days of making the initial enquiry.
Conclusion
With the right support and preparation, applying for a bridging loan should be a quick and easy process.
Before you begin don’t forget to find a broker with specific bridging loan experience as this can be a deciding factor in whether or not you get the deal you want. We have the expertise to help, so get in touch if you’re ready to start the process.
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