Flexibility and accessibility are two of the biggest benefits of bridging finance. Compared to many mainstream mortgages and commercial loans, bridging finance can be much faster and easier to organize. Some lenders can underwrite and authorize bridging finance within a few working days if all essential paperwork is in place.
However, when it comes to basic eligibility requirements, who can qualify for bridging finance? What are the criteria for authorization of bridging loans and how strict is the application process?
Bridging Loan Criteria: Basic Eligibility Requirements
All lenders have their own unique terms and conditions, with regard to whom they are willing to work with. Some lenders are stricter, placing heavier emphasis on certain criteria than other lenders.
In general, however, the following criteria must be met by anyone looking to take out a bridging loan for any purpose:
- Bridging loans can be taken out by individuals, limited companies, or partnerships.
- The applicant must be a UK resident, or have an address registered in the UK.
- Bridging finance is available only to adults aged 18 years or older.
- Viable assets of value must be available for use as security for the loan.
- Evidence must be provided of a workable and reliable exit strategy.
- Most lenders offer bridging loans starting from a minimum of £10,000.
- Credit checks and general financial status checks are always performed.
What is important to highlight at this juncture is how credit checks and financial status checks are not the most important aspects of the application screening process. Unlike conventional mortgages, for example, a bridging loan application will not be automatically declined on the basis of poor credit.
Many lenders welcome “subprime” applicants — even those with a history of bankruptcy or insolvency. However, your credit history and financial background may impact the affordability of the loan you are offered.
Applications are assessed on their overall merit, but the very best deals are usually reserved for applicants with good credit and clean financial backgrounds.
What Can a Bridging Loan Be Used For?
Most lenders place a few (if any) restrictions on how a bridging loan can be used. Bridging finance enables borrowers to temporarily free up the capital they have tied up in equity, which can subsequently be used for any legal purpose.
Even so, there are some uses for bridging loans that are more popular than others. The five most common uses for bridging finance in the UK as of 2022 are as follows:
1. Investment Property Purchases
More people use bridging finance to purchase investment properties than for any other purpose. This includes seasoned investors and first-timers alike, looking to convert their equity into a profitable investment opportunity. Purchasing buy-to-let homes with bridging loans and flipping “fixer-upper” properties are particularly popular projects.
2. Purchases at Auction
Properties and other high-value items change hands at auction for significantly less than their true market value. However, the full price payable for purchases at auction must be transferred within 28 days. As bridging finance can be arranged within a few working days, it is ideal for covering time-critical costs like these.
3. Escaping Property Chains
Bridging finance affords homeowners all the convenience and financial privileges of a cash buyer when looking to relocate. More people than ever before are using bridging finance to escape the conventional property chain. This is in order to negate the risk of being gazumped, or facing the prospect of a broken chain for any other reason.
4. Property Refurbishments and Improvements
People take out many thousands of bridging loans each year to cover the costs of minor and major property refurbishments and improvements. Developers and homeowners alike often use bridging finance to conduct repairs and renovations on residential properties, prior to listing them for sale.
5. Covering Business Expenses
A fast-access bridging loan covers almost all types of urgent business expenses. Examples of these include equipment replacements and upgrades, repairs to premises, paying unexpected tax bills, covering staffing costs, and more.
