Following the financial crisis, many banks restricted lending activities. They also created tick-box methods of assessing loan risks that made it difficult for investors to gain finance for non-standard loans. Alternative lenders saw a gap in the lending market and created innovative bridging finance products for people to whom the large high street banks do not want to lend. The risk aversion tactics of large banks as a reaction to the financial crisis was a business opportunity for smaller alternative banks.
Many property types can be difficult to finance with a standard mortgage. These include nightlife venues, mixed-use developments and ex-council property. Bridging lenders can assess loan applications for these types of properties on a case by case basis. If the deal makes financial sense, lenders will provide loans.
Some property requires conversion, and this needs planning permission which can take time. Many large lenders will not provide a loan until planning permission has been granted and conversion work completed. An investor needs to pay upfront expenses such as architect fees. A bridging lender provides funds whilst the investor goes through the process of applying for planning permission and completing the refurbishment work.
Bridging finance was once seen as a niche product, but with an expanding number of uses, many investors see bridging as their first choice for short-term funding. They use it to expand property portfolios, change property use and improve properties to increase capital value and rental yields.