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The variations and parallels of bridging finance and development loans
Ever since the market meltdown many loan providers have tightened their loan underwriting which made it harder for people to get loans. This has specifically affected people looking to obtain mortgages because a good credit history is once again an essential and bigger deposits are required.
The tight lending constraints that are affecting many lenders have resulted in people failing to obtain the loans that they require. Some individuals have checked out other available choices for raising finance rather than putting an end to their plans. On many occasions bridging loans have been an alternative option, though it has to be said not always a smart alternative.
It is very important to be aware that bridging loan deals are just intended as a short term loan facility and therefore has to be repaid in 6 to 12 months. Bridging loans are frequently the least expensive option for raising finance over a short time period, however they generally have a high monthly interest charge leading them to uneconomical if used as a longer term loan option.
The other strengths of bridging finance are that they can be put in place promptly on account of the more flexible underwriting criteria. It is this advantage that makes them favored as a method of finance when approaches through other channels have failed! Besides being useful when funds are needed in a hurry, bridging lenders will utilize a large variety of property as security. This includes derelict property, land and buildings needing repair. Because of the flexibleness in lending on property in need of work or significant repairs, bridging loans are commonly used as a quick way to fund building projects.
On the other hand there are other financial choices than bridging loans which can be used for building projects. With many parallels development loans may also be a good option for paying for building, redevelopment and construction projects. The primary advantages that development loans have over bridging is they can be set up with lengthier terms, often up to three years, and the funds can be released gradually as it is required. This has got the main advantage in that interest isn't actually being charged on money until it has been utilized once the project begins and expands.
The lenders who provide development loans are experts with regards to building projects so can be very helpful and can structure finance facilities which will be truly helpful to the project.
In terms of bridging finance, when the development is over the property or house will be sold and the proceeds used to pay back the development loan. Alternatively the completed property can be refinanced to repay the development funding and offered to the rental sector.
