Who Uses Bridging Funding?

There are a few types of people who might look to secure bridging funding business owners, property investors and property buyers who need quick access to cash to secure an investment. Waiting around for your funds to become available may mean you miss out on key opportunities. That’s where a bridging fund comes in.

What is Bridging Funding?

Bridging funding is any type of short-term loan or investment that helps bridge the gap between purchase and your capital becoming available. This can be through a bridging loan (often supplied by banks and other loan companies), peer to peer lending/ crowdfunding sites or even from private investors. This funding enables you to take advantage of opportunities that would slip away if you had to wait for money to become freed up (e.g. a house sale, mortgage agreement and finding new investors). Interest rates of often higher than more long-term loans, like mortgages, however, they are only meant to bridge the gap, not be a long-term solution.

Types of UK Bridging Loans

There are two types of UK bridging loans, open and closed. A Closed Bridge is when as part of the process of agreeing the loan, the borrower sets out a clearly defined and dated exit for repayment, often based on a known source of capital becoming available by the end of the tenure (for example based on a completion date on a house sale that is in process, an investment dividend is due, inheritance that has become available etc).

The second type is an Open Bridge. This is where the borrower does not have a set date when their repayment capital becomes available. For instance, this can solve the issue of needing quick funds for an investment opportunity, where you haven’t had time to apply to your long-term lender/ investor. This type of bridge is also most often used when someone wants to buy a property, but there is no buyer for their own as yet. You would then use an open bridge loan to buy the house, with the condition that the loan is repaid when your other property sells.

Alternative Bridging Funding

If you do not want to get a bridging loan or the amount of investment is small there are other means of getting money quickly. These include other short-term loans (payday loans), credit cards, overdrafts, sales of equity, or secured loans against other property, cars, artworks etc. These methods however are not without risk and often you lose some control of your investment (if you go down the equity route).

If you are looking for a short-term solution to solve the need for quick funds for a significant purchase (£30k +), you cannot beat a bridging loan. Other methods to secure these funds all take longer (weeks or months rather than days and some cases hours) which might be the difference of getting you, or someone else, getting that dream home.