A bridging loan is a fast, flexible, short-term loan that can help you access funds quickly.
They are mostly used for property investments – either to fund a project or buy a new property before another one sells.
In this guide, we’ll talk you through everything you need to know about bridging loans, including their benefits, how they work, and how to tell if they are right for you.
Bridging Loans: The Basics
A bridging loan is a short-term loan designed to “bridge a gap” in financing.
For example, if you want to buy a new property but are waiting for your current one to sell, a bridging loan can get you the funds you need. These loans are much quicker to arrange than traditional loans and are normally secured against a property or another asset.
Bridging loans tend to be used when time is of the essence, especially in situations like property purchases, auction bids or development projects.
What Can You Use A Bridging Loan For?
Bridging loans can be used for a number of projects, including:
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- Buying a property before selling your existing one.
- Property development or financing renovation projects.
- Auction bids where quick payment is needed (normally within 28 days).
- Buy-to-let investments—buying rental properties while arranging longer-term finance like a mortgage.
- Other financial needs – bridging loans can also be used to finance other business projects, though you will still need to put down a property as collateral.
Open vs. Closed Bridging Loans
There are two different types of bridging loans:
Open bridging loans: These have no set repayment date. They offer flexibility but usually come with higher interest rates and quick repayment times.
Closed bridging loan: These loans do have a set repayment date, often linked with a specific event like a property sale. Closed loans generally have lower interest rates than open bridging loans because the repayment schedule is more predictable.
No matter which type of bridging loan you choose, lenders will want to know about your exit strategy. This will lay out how you intend to repay the loan, and may include selling a property, refinancing or selling another asset.
What Are The Benefits Of Bridging Loans?
Here are some key elements that make bridging loans attractive for borrowers:
Speedy
Bridging loans are usually approved within days, much faster than a traditional mortgage or loan. This is particularly useful when making time-sensitive purchases, such as properties at auction.
Flexibility
These loans can be used for residential, commercial or investment purposes and can have flexible terms, especially if they are unregulated bridging loans.
Large Loan Amounts Available
Unlike other loans, bridging loans allow you to borrow large sums of money. This is because you are putting down a property as collateral, so the amount you can borrow depends on this more than your income.
With Blue Square Capital, you can borrow between £250,000 and £2 million with an LTV of up to 70%.
Short-Term
Because bridging loans are short-term (3-15 months), they can be a quick fix until longer term funding is available.
Don’t Rely On Credit History
Because the amount a person can borrow is based on their collateral and exit strategy, companies are more likely to accept borrowers with poor credit history.
How Much Can You Borrow With A Bridging Loan?
The amount you can borrow with a bridging loan depends on a number of factors. To start with, different lenders will allow people to borrow different amounts. If you are looking to borrow a particularly large sum of money, you might need to look for specialist lenders with higher thresholds.
Other factors that influencer this include:
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- The value of the property being used as security.
- Your financial situation and credit history.
- Your exit strategy and how risky it is.
With Blue Square Capital, borrowers can access loans between £250,000 and £2 million. We offer up to 70% of the property’s value (also known as the loan-to-value ratio or LTV).
Can You Extend A Bridging Loan?
Whilst you can sometimes extend a bridging loan, it’s important to go into the process with a solid plan to avoid this.
If you find that you are coming up against some delays, you might need to talk to your lender about an extension. However, extensions are often very expensive and may come with extra fees.
It’s very important to have a realistic exit strategy in place when you first take out the loan, so that the risk of you needing an extension is almost 0.
What Are The Alternatives To A Bridging Loan?
Bridging loans aren’t the only way to raise quick funds. Here are a few alternatives:
Personal Loans
For smaller amounts (up to £50,000), personal loans can be a good option. They don’t need you to put down a property as security, but borrowing limits are lower, highly affected by credit history and approval may take longer.
Remortgaging
If you have equity in your home, remortgaging can free up the funds you need. However, this usually takes longer to arrange and involves long-term repayment plans with early exit fees.
0% Interest Credit Cards
For small expenses, a 0% credit card can be a smart option. However, this only works with smaller sums and depends on your credit limit.
Is A Bridging Loan Right for You?
Bridging loans can be a great tool if you need to unlock a large amount of funds and fast. They are quick, flexible and come with high limits, making them useful for property buys.
If you’re ready to explore your options, Blue Square Capital offers bridging loans between £250,000 and £2 million.
