The primary criteria to secure a bridging loan is that borrowers need an exit strategy, which is often dependent on obtaining longer term finance. Here we cover some prime examples when a borrower has already secured a long-term loan, but still needs additional finance quickly.
One frequent example is an investor purchasing off-plan. Before the property has finished construction, the investor is often served a notice to complete purchase. The investor may have arranged a mortgage already, but the lender cannot have the mortgage funds before the completion deadline. A bridging finance lender will know the exit strategy is sound because the borrower has a firm mortgage offer and can repay the loan as soon as mortgage funds are available. The bridging loan period will probably be short, so interest payments are relatively low.
In other cases, a borrower has a mortgage offer and does not know how long the paper and legal work will take to process. An instance of this is at a property auction a winning bidder will typically pay a 10% deposit at the auction then has 28 days or less to pay the whole of the purchase price. Even with a mortgage offer arranged it can take more than 28 days for the funds to be available. A bridging loan can complete the purchase then be repaid after the mortgage application is complete.
These are typical examples of bridging loans being used in the interim whilst waiting for longer term finance, but there are many more reasons demonstrating the flexibility of bridging finance.