A bridging loan is a short-term financial solution between a debt becoming due and a mainline or permanent credit coming in. It’s actually a stopgap between loss and influx of money and commonly used as a short-term emergency. Commercial property business people find it very helpful because it helps them take care of a few financial gaps as they wait for a mortgage loan to mature or a long-term loan.

Here are a few things you need to know about these loans

Bridging loans are in two types

There are two distinct types of bridging loans; open and closed bridging loans. A closed one is the type of loan where the exit is guaranteed and determined because there is a long-term financial solution like a sale of property or mortgage being arranged. However, these can fail at the last minute and therefore this type of financing is not common.

On the other side, an open bridge is a type of loan, which, as the name suggests, doesn’t have an exit date. Thus, it runs for a specified period - typically six to nine months. The advantage with this loan is that you can influence the regularity of payment of interests including the interest you pay when you decide to clear the loan at once.

Bridging g loans can be used to cover VAT

VAT savings can be incorporated into bridging loans. Ordinarily, VAT is not mandatory when doing a residential property purchase but when buying several commercial properties, it is crucial. With bulk - buying of property, property owners would realize an increased property price by twenty percent.

It is required for the new freehold commercial property and this makes it difficult for parties to cut deals when offloading property. Owing of VAT is due to the negative impact on the UK housing market because it favors those with lots of holdings. A bridging loan is essential for topping up the funds for the VAT before it is reclaimed. Specialists’ bridges, which are designed around this requirement, are always available.

Bridge loans are fast and short-term

If you apply for a bridging loan today, it would take not more than fourteen days and sometimes even less than twenty-four hours for a decision in principle. This makes them an ideal short-term financial solution. The reason for the short processing period is because of the high interest and due to the fact that they’re used in property dealings. The property deal in place determines the time it would take to process the loan and therefore the more complicated it is longer it takes to finalize.

Bridging loans help in funding auctions

Auctions and need quick decisions and exchanges, and this makes the bridging loans the preferred financial option. Here, the finances need to be sorted within twenty-eight days. Thus, a bridging loan would eliminate the financial stress around the auction and thus allowing one to focus on planning tenancies and other demanding contract issues. Thus with this loan, you have peace of mind.

The cost and the process involved in bridging loans vary from one lender to another. Thus, it is important to compare bridging loan rates and conditions of a few before you settle on one. Again, you should choose an advisor who will guide you on choosing the best bridging loan financial provider.