Harry August 13, 2022

Short-term bridging loans can be apt if you need secure finance for short-term property-purchase-related issues. Short-term bridging loans help gain flexible monetary assistance to bridge the gap until one receives long-term finance to fix the gap. Only specialized lenders provide bridging loans.

Not every lender attends to the customers needing bridging loans. It is a secured loan. It implies one must ensure it against a property. Failure to meet the repayments may lead to asset repossession by the lenders.

 These loans are generally short-term and last for up to 1 year. It is used as a bridge to execute a new property purchase before selling the old property.

What Are Some Different Causes to Seek Short-Term Bridging Loans?

You may be willing to use bridging loans for a variety of reasons:

  • Purchasing possessions at a real estate auction
  • Finalizing a property purchase before exiting home sells
  • Refurbishing your residential home
  • Financing in a saleable property such as purchase-to-let possessions
  • Reducing money flow problems

Short-term bridging loans often have the flexibility of rolling up the interest rates by the finance term-end. It is one of the reasons that makes it a popular choice among investors and real estate owners.

To get a short-term bridging loan, one must ensure an exit strategy.

What is a Bridging Loan Exit Strategy? 

An exit strategy is a plan that a borrower must ensure to pay back the dues to the bridge loan lender. Bridging loans are highly volatile loans that require ensuring strong affordability.

A lender may not approve a bridging loan if a borrower lacks an exit strategy. The reason is – in this situation, the lender may doubt the loan affordability and hence may deny one. A borrower having one can get 100% bridging loans from a lender.

Bridging loans typically for 3-12 months can be longer and shorter. Many lenders waive off interest if borrowers pay the loan early. So, generally, it makes sense to borrow for slightly more time.

5 Primary Bridge Exit Strategy

There are a few ways to create a bridging loan exit strategy, like selling the primary/ secondary to take on a longer mortgage. You must evaluate the personal situation and the circumstances before choosing the perfect exit strategy for short-term bridging loans.

Check out some exit strategies that may help you get the bridging finance.

Property Sale 

As the name suggests, bridging finance help bridge a short payment gap between purchasing a property and selling the old one. If you took a loan in the same fashion, use the money to settle the loan.

Refinancing to a long-term mortgage

It is one of the most profitable practices to avoid defaulting on a small bridging loan. You can use auction property to get a bridging loan. Yes, a small bridging loan is a secured loan. You have to stake a property or asset to get the loan.

By using a bridging loan as an auction Property Finance, you use it to finance the property purchase at the auction. Renovate the property before selling it. It is also known as a buy-to-let mortgage.

Hen refinancing for a long-term bridging loan lender performs due diligence. It helps them ensure the authenticity and affordability of the buyer and the risk involved in lending. Thus, they may ask the property owner to file an agreement in principle as proof of repaying the loan and that the borrower is left with no other option.

Selling the second property

It is one of the best ways to avoid defaulting on a small bridging loan. You can use auction property to get a bridging loan. Yes, a small bridging loan is a secured loan. You have to stake a property or asset to get the loan.

By using a bridging loan as an auction Property Finance, you use it to finance the property purchase at the auction. You can refurbish the property before positioning it up for a deal. It is also known as a buy-to-let mortgage.

Hen refinancing for a long-term bridging loan lender performs due diligence. It helps them ensure the authenticity and affordability of the buyer and the risk involved in lending. Thus, they may ask the property owner to file an agreement in principle as proof of repaying the loan and that the borrower has no other option.

Inheritance

The lender may tap into these if the borrower has no tangible assets or owns but from an inheritance. A borrower may use the inherited asset to pay off the lender. The borrower must reveal enough proof to reveal the ownership of the property.

The validation contains a will, probate documents, or verification from the provisional solicitor. 

Allowing the authenticity with enough proof may help you ensure a clear exit strategy. Having a tab over proof eliminates the risk for the lender. You may get 100% bridging loans from the lender.

Selling the investments 

It might not be a convincing way to repay the loan and have a good exit strategy but surely an option. In this, a borrower must be able to convince the lender of the investments. It might prove a challenging option for you.

However, if you are successful, this could prove to be one of the good exit strategies for bridging loans. 

Convincing the lender of something that might have potential but fluctuate requires in-detailed knowledge of how the investment works and the returns it provides.

Sale of a business

It is one of the most pressing decisions. Generally, no business owner stakes his business to get bridging finance. But if it is of utmost importance and one does not have any potential assets, selling a part as equity or staking the business property may be a viable choice. Or you may ensure the lender pays the loan by selling the business property.

Bottom line 

ridging lenders want to ensure loan affordability and repayment. Thus, ensuring multiple exit strategies. A lender may not agree with one. As an investor, it is important to have a foresighted impression of the investment and liabilities. It will help you decide right.