When Should You Use A Bridging Loan?

In the world of finance, there is often a particular type of loan or financial instrument to support every type of project, from asset-based lending such as mortgages, raising capital and unsecured loans.

These all have different criteria, purposes and average periods to wait between application and receiving the money into your account. What options do you have, therefore if you need money now whilst you wait for longer-term finance options?

In some cases, bridging loans, a short term, relatively high-interest loan can be the solution, particularly in situations where time is of the essence.

As bridging loans can sometimes be turned around in less than a day in the right circumstances, they are best used in situations where the difference between success and failure is a matter of days, such as purchasing a property at auction or for homeowners to buy a house whilst waiting for a sale.

This makes offering bridging loan advice a matter of determining whether a business or individual’s financial circumstances both now and in the immediate/short-term are such that a short term hard money loan such as a bridging loan is the most suitable option.

One example of its use outside of purchasing property may be to provide working capital to help a business expand and continue to function whilst waiting for equity financing and for other money to come in, providing short term security when a longer-term goal is in sight.

Whilst the interest rates are higher, they can often be worth it in exchange for peace of mind.

Of course, it must be noted that, as with any short term asset-secured loan, there are considerable risks involved as was seen in the case of the loans to FC Barcelona before March 2020.

Barcelona, despite being the most valuable football team in the world and the fourth most valuable sports franchise of any kind, had a debt of €1.2bn in 2021, but the issue was less the amount and more the fact that much of it took the form of bridging loans that were repayable in the short term.

This situation, which nearly bankrupted the richest football club on Earth, led to them selling and releasing as many of their players as possible in an ongoing difficult financial situation of their own making.

Ultimately, a bridging loan is the right choice for a borrower if the potential for further long-term sources of revenue is available in the short or medium term.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

A fee may be charged for mortgage advice. The exact amount will depend on your circumstances. I.I Financial Services Limited is an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales company no. 10817448. Registered office Expressway G15, 1 Dock Road, London, E16 1AH