Can I use assets to secure my bridging loan? Are there risks involved, or any alternatives? In this article Personal Loans Now explores all about how to secure a bridging loan.
- What types of assets are used to secure my bridging loan
- Whether bridging loan providers only accept property as assets
- What the risks of bridging loans are
- Alternatives to bridging loans
- Conclusion – Secure my bridging loan
Secure a Bridging Loan
As a specialist financial product, bridging loans are less well-known than other forms of borrowing. In this article, we start by explaining what kinds of assets you can use to secure your loan. We then look at the risks of these types of loans. What are the factors you have to be careful of? Finally, we consider whether there are alternatives to taking out a bridging loan.
What Types of Assets are Used to Secure a Bridging Loan?
Unlike other forms of borrowing such as mortgages, a bridging loan provider is less concerned about affordability checks, proof of income and your credit rating when you apply for a personal loan UK. Instead, their main concern is that you have an asset which can be used as security against the money you’re borrowing.
The most common asset that borrowers use to secure their loan is property. This could be the residential, mixed-use (for example, residential and commercial), commercial, industrial, or it could be land (agricultural or development). There are no restrictions on whether it is freehold or leasehold. Another way that bridging loans differ from mortgages is that the condition of the property is irrelevant. For example, if it needs extensive renovation work, if it lacks amenities like kitchens or bathrooms or if it’s non-standard build. All of these would be reasons for mainstream lenders to turn down a mortgage application.
Do Bridging Loan Providers only Accept Property as Assets?
Although property is the most common way of securing a bridging loan, there are specialist lenders that will accept other assets. These include jewellery, watches, antiques, precious gems, vintage cars and artwork. In fact, any object that is valuable and which will retain this value. There are usually minimum and maximum amounts that they’re prepared to lend with these types of assets.
What are the Risks of Bridging Loans?
There’s no doubt that their flexibility and speed of the loan approval make bridging loans very attractive to many. However, like all loans, they also carry an element of risk. What are they?
- Your Exit Strategy
- The Loss of Assets
Before your bridging loan is granted, the borrower wishes to see a well-considered exit strategy. In other words, you have a very clear idea about how the loan will be repaid. If you need the loan as a stopgap measure not to lose the home of your dreams while waiting to sell your old property, you might think this doesn’t concern you.
However, you must appreciate that the property market can be totally unpredictable. If you apply for a bridging loan, you have to weigh up the risks of the unexpected. For instance, if you’re using a bridging loan to fix up a derelict property, what will you do if you can’t get your asking price? How far will you be prepared to drop the price? If you’re buying a property at auction, many mortgage providers have a 6- or 12-month rule. This means that they won’t approve a mortgage unless the previous owner has possessed it for this length of time. What will you do if your prospective buyer can’t get a mortgage?
The world of business is equally impossible to foresee. If you’re suffering from a temporary cash-flow problem in your company, what will you do if your debtors don’t meet the deadline for payment as you expect?
Before I use assets to secure my bridging loan, should I consider the possibility that they may be seized if I default on the loan?
Yes, the loan provider will put a charge on the property which will be registered at the land registry. This could be the first charge (if you have no outstanding finance on it), or it could be a second or even third charge. When the property is sold, these debts must be honoured. For other high-value assets, the lender will retain physical possession of the object until the long term loan for bad credit is repaid.
Alternatives to Bridging Loans
Despite their advantages, bridging loans also have their negatives. With a higher interest rate and associated fees, they can be significantly more expensive than borrowing from mainstream lenders. So, what are the alternatives to bridging loans?
- Mortgages from Mainstream Lenders
- Secured Loans from Mainstream Lenders
- Finance Solutions for Businesses
It’s true that mortgage providers’ lending criteria are much stricter nowadays. However, if you have a regular satisfactory income and a high credit rating, approval will be much faster. Consider whether it might be better to take out a mortgage with a mainstream lender rather than pay the additional costs of a bridging loan. Since 2017, some financial institutions offer a 1-year mortgage which is very similar to a bridging loan, but is much cheaper.
Using your property as an asset to take out a secured loan will also work out much cheaper than a bridging loan. You might be able to get a preferential rate if you have a long-standing relationship with the bank or building society.
If your firm is struggling because you’re owed money by customers, invoice finance will work out much cheaper than a bridging loan. Other possibilities are an authorised business overdraft or asset refinancing. The latter allows you to raise capital which is secured against vehicles or plant machinery.
Conclusion – Secure My Bridging Loan
Before taking out a bridging loan, it would be a good idea to consult an independent FCA-approved financial advisor. They would be able to tell you whether a bridging loan is the best financial product for your needs. You must make sure you go into the matter with your eyes wide open and weigh up all the risks before making your final decision.