Bridging Finance for Property Developers
Bridging finance is particularly effective for property developers who need access to funds rapidly in order to secure a property. This article illustrates some of the ways in which property developers make use of bridging finance.
Bridging finance is effectively a short-term loan, usually used for a maximum of up to 12 months which can be used for a number of uses from consolidating debts, securing new property or commencing an office refurbishment. Property developers often rely on bridging finance as a short-term solution that will allow property refurbishment or builds to advance even if developer lacks the initial cash outlay. Whether you are a first time property developer developing just 1 or 2 properties per year or an experienced property development business with lots of ongoing developments bridging finance is open for you.
In what situations would bridging finance be useful to a developer?
A lot of property developers use bridging finance as a way to acquire property at auctions, or new builds as well as to undertake improvements, conversions and refurbishment. This injection of funds allows developers to get projects started in the absence of immediate funds. Some property developers will also use bridging loans to break mortgage chains, to purchase buy-to-let properties or raise working capital.
Here is a clear situation when and how a property developer may engage a bridging loan:
Having come across 2 properties which are in need of substantial works prior to resale, a property developer needs to put an offer in fast as they understand that their competitors will also be curious. The developer doesn’t have the demanded capital immediately available, but can afford the investment. Instead of going through the drawn out process of acquiring the capital by selling assets, the developer decides a bridging loan instead. This bridges that gap between acquiring the new properties and releasing the equity locked in current assets.
This is a classic example of when a bridging loan can secure a property for the developer; it allows the developer to acquire the property without having to offload any of their existing property or assets. This is specifically useful when property is bought for the sole purpose of immediate resale for a profit. By making use of bridging finance the only further expense for the developer would be the interest acquired on the short-term bridging loan.
When a developer needs to begin draw downs or just redistribute equity across an existing portfolio, bridging finance can be a means to this end.