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A Useful Guide To Navigating Bridging Loans

If you have been seriously exploring your loan and finance options for a project, chances are that you have come across the term bridging loans. It is a good idea to learn the basics of what this type of loans entail to ensure that you are making the best financial decisions for your situation.

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What exactly a bridging loan

As the name suggest, a bridging loan is designed to get you from one financial step to another, usually as a temporary solution to financial problems. this type of loan is useful for continuing a project for example as you wait for a more permanent or larger form of finance, or clear until you can clear the full amount of a loan. A bridging loan is typically a short-term business loan.

What is the difference between bridging and regular loan

The main difference between bridging loans and regular loans is the former are typically intended for a very particular purpose and for the short-term. Regular term loans on the other hand have a much longer repayment period and have a more general commercial purpose. The speed at which the loans are processed also differentiates between the two. A regular term loan can take a few weeks to process while a bridging loan can be offered in as little as 24 hours, depending on the lender.

What can a bridging loan used for?

As previously alluded to, bridging loans typically have a very specific and short-term purpose. This may include purchasing and renovating commercial or residential property. The loan may be used for large ground-up projects or smaller projects such as adding a bathroom.

What does ‘exit’ mean?

The term ‘exit’ comes hand in hand with bridging loans. This basically refers to how the recipient of the loan intends on making the finance more permanent such a term mortgage, or how the loan will be repaid in full including interests and any additional charges.

There are also two varieties of these loans; closed and open bridging loan. Closed loans typically come with a fixed repayment or exit date and offered as a line of credit. Open bridging on the other hand involves a more general deadline for repayment. A financial adviser can help to navigate the options to find the most suitable for your specific situation or purpose.

Interest rates for bridging loan

Lastly, interest rates for bridging loans vary widely from one lender to the next. Generally speaking however, these loans attract a higher interest rate than their traditional counterparts because of their specialist or niche nature. Most loan providers are flexible with repayment terms and interest rates making it possible to find a good deal on much needed financing.

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