If you need to access funds quickly for a property transaction or to cover a shortfall in cashflow for your business, a bridging loan could be the ideal solution. Bridging loans are a type of short-term finance that can provide borrowers with fast access to capital. But just how quickly can you get approved and receive the funds from a bridging loan.
Within this blog post we will take a more in depth look into what bridging loans are, the process of getting a bridging loan and how long it will take you to access the funds you need. This will leave you in a position to make an informed choice if you are considering taking out short term finance.
What Are Bridging Loans?
A bridging loan is a short-term loan that “bridges the gap” between the purchase of a new property and the sale of an existing one. It allows borrowers to access capital to complete their property purchase, with the loan then being repaid once their existing property sale goes through.
However, bridging loans can also be used for other purposes beyond just property transactions. They can be taken out to provide short-term working capital for a business, fund renovations or refurbishments, or cover tax liabilities or other unexpected expenses.
Because they are secured against property the qualification criteria for bridging loans is often not as stringent as those for more traditional types of finance such as mortgages. The fact that they can usually be processed relatively quickly make bridging loans a popular choice among people buying property at auction.
What Are the Main Uses of Bridging Loans?
When they talk about bridging loans most people automatically think about property purchases. Now, while this is probably the most popular use of a bridging loan they can also be used for a number of other reasons. Listed below are some of the most common uses of bridging loans which include:
- Funding property purchases before your current property sale completes
- Covering short-term cash flow gaps for a business
- Financing property renovations or development projects
- Paying tax bills or unexpected liabilities
- Raising capital quickly to take advantage of time-sensitive opportunities
What Is Needed to Get a Bridging Loan?
While getting a bridging loan can often be less complicated than something like a mortgage you will still have to satisfy a number of conditions before being approved. The first thing that lenders will look at is your exit strategy. What is an exit strategy you may ask? Well that is your plan for repaying your bridging loan. Exit strategies are usually the sale of an existing property or the receipt of any funding you were waiting for. As long as you can demonstrate you have a viable exit strategy lenders will be more disposed to providing you with the funding you need.
However along with a clear exit strategy you will also need to satisfy any lender that you have:
- The ability to service interest payments
- Adequate property security
- Proof of income/assets
Lenders will scrutinise the borrower’s exit strategy and security to ensure the loan can realistically be repaid during the bridge period usually 1 to 24 months.
What Is the Typical Timescale?
One of the key benefits of bridging loans is their speed compared to traditional financing routes like mortgages. Depending on the lender, and how complex your transaction is, bridging loans can sometimes be approved and funds issued in as little as 2-3 weeks from your initial application.
However, the average timescale is closer to 4 weeks from application to approval and receipt of funds. This allows time for the underwriting process, valuation of security property, legal work, and other due diligence checks.
Factors Affecting Speed of Bridging Loans
There are a number of different factors that can affect how quickly a bridging loan application is processed: These factors generally include things such as:
- Quality/complexity of paperwork and exit strategy
- Experience and efficiency of lender
- Amount being borrowed
- Issues arising from due diligence (e.g. property valuations)
- Whether the borrower has previously worked with the lender
While the time taken to approve a bridging loan is not an exact science generally straightforward applications with all paperwork in order can usually be approved rapidly by efficient specialist lenders. However, more complicated cases may take longer.
Bridging Loans vs Other Finance Types
In most cases, bridging finance can be accessed significantly quicker than mainstream lending routes like mortgages or business loans from banks. These traditional loan types commonly take 2-6 months from application to funding being made available.
The key benefits of bridging loans in terms of speed are:
- Specialist non-bank lenders able to move quicker
- Less extensive documentation/evidence required
- Straightforward underwriting focused on exit strategy
- Funding secured against property/assets rather than income
So while not instant, bridging loans can get capital into a borrower’s hands within weeks rather than months for those who need fast access to financing.
In summary, bridging loans are a versatile type of short-term financing that can be used for a variety of purposes when fast access to capital is required. With a solid exit strategy and adequate security in place, efficient specialist lenders may be able to approve and issue funds for a bridging loan within 4 weeks in many cases.
This rapid turnaround compared to traditional lending makes bridging finance an attractive option for those needing to quickly complete a property purchase, cover short-term funding gaps, or seize time-sensitive investment opportunities. While more costly than long-term lending, the speed of bridging loans is extremely valuable in the right scenarios.
If you are looking for bridging finance contact the team here at Pyxis Capital today we can help you access the funding you need quickly and with a minimum of fuss.