Green Investing Today

“I have to get a bridging loan and fast if I don’t want to lose this deal!”

This phrase is echoed by property entrepreneurs all over the UK today. Since 2007 the price of properties has fallen significantly, and left the door open for property investors to take advantage of this opportunity. But to make this happen before someone else beats them to the post, they need to have access to money fast and a bridging loan is often the answer.

Those who underwrite bridging loans more often than not can identify specifically what type of property they are able to accept time and time again. Even though bridging loans are characteristically fast to acquire, occasionally it turns out that it is not actually a bridging loan. Here we look at an occasion where in reality you are accidentally seeking something different from a bridging loan.

A bridging loan is specific to the deal or business transaction you are trying to secure and is designed to achieve this with speed. Standard loans are not purpose specific and can be used for almost anything.

Most of the time bridging lenders can identify which transactions are ideal for them and which are not but this is not always the case. Below is a good example of this. Imagine the following transaction is yours, and it is one that could easily net you 450,000 pounds, and there would be relatively little work involved.

* Prime Location property (think Central London)

*Very high property value (imagine 5 million pounds)

*You are the borrower with over 2 million pounds of property and experience under your belt

On face value this kind of transaction is what lenders want every day. Surely, this has to be the perfect loan doesn’t it?

It is close but not quite perfect.

The most important element is missing and that element is the Exit Strategy.

Without a clear, defined and all-but-concrete exit strategy, what does the bridging loan transform into? It moves from being a bridging loan to being “equity participation”. In less technical terms, what started off as a loan to you changes into an investment by the lender who is now hoping that he is able to profit from the sale or refinancing of the property.

This is a good example of what borrowers tend to forget. As a borrower without a firm exit plan, you have made the lender an investor in a project that could potentially go bad. This is your project, not a joint venture with the lender; he does not want to own the property. All he wants is to be paid a fee upfront for the loan and profit from interest charged on that loan. Before you enter into a deal, you must be sure of exactly how you are going to exit the project.

If the borrower does not already have a buyer lined up or any form of agreement in place to refinance, then it is probable that the borrower may find it difficult to get the bridge finance fast enough in the current market. It is extremely important to have a solid plan to close the deal.

Before you actually begin any project you should first consider how it will end. So in the case of a bridging loan, you need to know how and when you are going to repay it. Lenders also want to know that they are entering into a safe deal and to be sure of this they will just ask this question:

If I give you a bridging loan, how will you repay me easily and quickly?

You can access more bridging loan information by going to the Bridging Loan Direct website or by contacting one of their associated specialists in bridging loans