If you’re looking for a bridging loan, no doubt you need to secure the funds quickly to cover a short-term gap or capitalise on an opportunity. Knowing where to start and the steps involved can help you prepare and speed up the process.
The bridging loan application process typically takes between 7 and 14 days but can be shorter. Being well prepared and having a good understanding of the eligibility criteria can expedite the process, as can working with an experienced broker.
This article will explain the steps involved in the bridging loan application process, including the typical eligibility criteria.
At Bridging Options, our aim is to cut through the jargon, provide clarity and help you understand the world of bridging finance. We can put you in touch with an expert from our network of bridging loan experts, to help you secure the funds you need for your next property purchase. Contact us now to get started.
How do bridging loans work?
If you are reading this article, chances are you’ve done your homework on what bridging loans are and how they work, but here’s a quick summary.
Bridging loans are short-term loans that provide funding while awaiting long-term financing or the sale of a property. They allow the borrower to essentially borrow money to “bridge” the gap between their current financial need and future income. They are typically used by developers and landlords to buy commercial and residential property, sometimes at auction.
Bridging loans are secured against property, have higher interest rates than traditional mortgages, and require a clear exit strategy for repayment, such as selling an existing property or securing long-term financing.
Closed bridging loans have a fixed repayment date, whereas open bridging loans do not. All bridging loans are usually repaid within 12 months, sometimes up to 24 months.
Are bridging loans difficult to get?
If you haven’t applied for one before or you don’t have much experience with large property purchases, then yes, it might be difficult to get a bridging loan by yourself. You’ll need to do a lot of research to find the best lenders and bridging loan interest rates, and then you’ll need to handle every step of the application process.
However, getting a bridging loan can be much easier with the help of an experienced broker. They will be able to find you the best bridging loan rates and help you during every stage of the process to increase your chances of a successful application.
The better your financial situation, the better your chances of being accepted for a more appealing loan deal.
The Bridging Loan Application Process
We’re here to make sure you’re fully prepared for the bridging loan process, helping you work out what you need to apply and where to start. Be prepared and speak to an experienced broker to increase the likelihood of approval and get your funds in as little time as possible.
Here is Bridging Option’s 9-step guide to the bridging loan application process.
1. Plan and prepare
Preparing for your bridging loan application can make the process move faster, meaning the money could be in your bank sooner. To prepare ahead, you should think about your financial circumstances, and if a bridging loan is right for you, how much you want to borrow and how you’ll repay the loan.
Deciding how you plan to repay the loan is a key part of the bridging loan process. It is known as the exit strategy and is crucial for ensuring you can effectively manage the financial responsibility of a loan. Most lenders will want to know your exit strategy before agreeing to the loan terms so they can be sure you will be able to repay the funds.
Once you have an idea of what you’re applying for, you can start to gather the essential information.
Read more about if a bridging loan is right for you here.
2. Prepare your documents
Most lenders will want to carry out some checks before agreeing to any terms, but this is usually more straightforward than traditional mortgages. They will typically ask for proof of your identity and address, financial information, property details (of the property you plan to buy or develop) and details of the property you plan to sell.
- A valuation of the property you are buying
- Details of any outstanding mortgage
- Proof of identity and address
- Proof of income, recent bank statements
- Recent audited business accounts (if applicable) to demonstrate the strength of your financial profile
3. Devise your exit strategy
Having a solid exit strategy is crucial when applying for a bridging loan. An exit strategy demonstrates to lenders how the loan will be repaid at the end of the term, such as selling the property or securing alternative financing like a mortgage.
The plan should consider market liquidity, potential delays, and obtaining a refinancing agreement in principle. If selling a property is part of the strategy, it should be marketed by the time the loan is completed, with regular updates provided to the lender.
4. Speak to a bridging loan expert
As bridging loan advisors, we may sound biased, but the application process can be made far simpler when you work with a reputable bridging loan broker. They do this kind of work every day, so they know where to search for the best deal and exactly how to apply.
At Bridging Options, we’ll connect you to a specialist broker with experience in your specific situation. They will help you through the bridging loan process from start to finish. They will start with a thorough credit check to assess your eligibility and find you the perfect deal.
5. Submit your application
Once you have chosen a lender, your broker will complete the application form with detailed information about your financial situation and the property. They will submit it along with the necessary documentation listed in step 2.
Attention to detail is crucial at this stage. Insufficient or inaccurate documentation can slow down the application process.
6. Eligibility check and pre-approval
The lender will assess your application against their bridging loan criteria and arrange for a property valuation. Lending criteria vary, but in general, a lender will look at:
- The condition and value of your security property, including how much equity you have in it and any outstanding mortgage.
- The loan-to-value ratio (bridge loans are typically granted at a maximum LTV of 75-80%).
- Evidence of financial stability, including debt and income.
- Your experience in property investment or development.
- The lender’s most important consideration will be your exit strategy. Some lenders may check your credit rating, but it is not always a concern for bridging lenders as long as you have a strong exit plan. That said, a good credit score can potentially speed up a bridging loan application. Read about bad credit bridging loans.
7. Offer and final negotiation
The lender will assess your application and financial situation and will likely carry out a valuation of your property to determine your suitability. Once these checks have been done and they are happy, the lender will provide a conditional offer. This will include the loan amount, interest rates, loan terms and any other specific information.
8. Legal checks and formal approval
You must appoint a solicitor to handle the legal checks, including title deeds, property ownership, and any existing charges on the property. Once legal checks are complete and all conditions are met, the lender will formally approve the loan.
9. Release of funds (drawdown)
Once the legal formalities are out of the way, the lender releases the funds to your solicitor, who then disburses the funds as required (e.g., to complete the property purchase or to your bank account).
How long does the bridging loan process take?
The bridging loan application process typically takes 5 to 21 days. In the case of a property purchase, the typical processing time is around 7 to 14 days. However, under optimal conditions, the process has been known to take as little as 72 hours.
Common delays include slow property valuations, inaccurate or missing paperwork or simply poor communication.
Conclusion
Applying for a bridging loan can be a straightforward process if you understand the necessary steps and prepare in advance. First, assess whether a bridging loan suits your needs and gather essential documents like property valuations, proof of income, and identity. A well-prepared exit strategy is crucial, showing how you plan to repay the loan. Contacting a knowledgeable broker can streamline the process and potentially secure better terms. Submit a detailed application, and if you meet the lender’s criteria, you’ll receive a conditional offer. After legal checks and formal approval, the funds are released, typically within a few weeks.
Contact Bridging Options for fast, efficient bridging finance
If you’re looking to borrow money for a quick property purchase or tricky renovation, contact Bridging Options today! With our expert insights and wide connection of specialist brokers, we can help individuals and business partners access the best bridge loans on the market.
Efficiency and speed are our top priorities during the application process. While the timeframe can vary depending on your situation, our team works incredibly hard to get you the solution you’re looking for.
Contact Bridging Options today, and we will connect you to an expert as soon as possible.
FAQs
What determines the bridging loan interest rate?
Bridging loan rates are determined by several factors, including the loan-to-value ratio, amount borrowed, duration, property condition, and the borrower’s credit history. Typically, bridging loan interest rates are between 0.4% to 2% per month.
How is interest paid on a bridging loan?
Interest on a bridging loan can be paid monthly or rolled up and paid in full at the end of the term.
Another alternative is to retain the interest, where the interest due over the loan term is calculated upfront and set aside from the loan amount. Instead of the borrower making monthly interest payments, the lender keeps this pre-calculated interest portion, and the borrower only receives the remaining balance of the loan. The full repayment, including the retained interest, is due at the end of the loan term when the borrower repays the principal amount.
The choice depends on the borrower’s financial situation and the specific terms agreed with the lender.
What is a first-charge bridging loan?
A first-charge bridging loan is one in which the lender holds the primary claim over the property. In the event of default, the first-charge lender has the first right to recoup their money from the sale of the property. These loans offfer lower interest rates compared to second-charge loans.
How much does a bridging loan cost?
It’s important to factor in the various costs of a bridging loan, including interest rates (charged monthly), arrangement fees (typically around 1-2% of the loan amount), valuation fees and legal fees. Some lenders also charge exit fees.
Read more about bridging loan costs here.
