As a property developer nears the completion of a project, they are often anxious to start their next building development. The issue they face is that until the near completed property is sold, they may not have the funds to pay for the initial work needed for the new development. Many large lenders are reluctant to provide loans for this type of situation.
The answer to this issue for many developers is to turn to alternative lenders. A bridging loan broker should be able to secure a loan from an alternative lender to fund the work on the new project. Although the existing property development may not be complete, a nearly completed building still has value and can be used as security for the bridging loan. The bridging loan can be for up to 70% of the value of the nearly completed buildings, and can be for up to 12 months. There are no exit fees for early repayment of the loan.
The lender and the developer will agree on what percentage of the sale of the existing development is available to repay the bridging loan. This is typically between 20% and 25% of the sale proceeds. A portion of the remainder of the sale funds can then be used to continue work on the new development.
Bridging loans can be arranged quickly and are flexible way to raise short-term capital. They are even available for developers with a less than perfect credit rating.