You can take a loan amount according to your needs and your lender's lending criteria. Bridging lenders and p2p lending platforms offer flexible lending criteria compared to traditional bank loans. You do not need to wait for weeks or months to get access to cash and use this amount for any purpose. Besides, there are many other benefits of bridging financing, which is why many people are using them.
In this article, we are going to describe everything you need to know about bridging loans for property development. After reading this, you will come to know whether bridging finance is the right option for your project.
Are There Specific Bridging Loans For Development Projects?
No, there is no specific bridging product for development. Bridging finance can be used for any purpose, but when you apply, you have to describe what you will use it for.
Although there are no specific bridging loans for property development, there are lenders who specialise in specific areas. Thus, finding the right blender that meets all your needs is essential.
Eligibility Criteria
Bridging finance is also called a short-term mortgage, but it's different from mortgages in many terms, such as in eligibility criteria. Most bridging finance providers focus on your security property and business plan instead of focusing on your personal income or financial history.
All the applications are assessed on a case-by-case basis, but there are some common factors that you should keep in mind:
Exit Strategy
It is the most important thing that bridging lenders look for when assessing a loan application. You will need to show a strong development plan and a viable exit strategy to secure a loan.
Common exit strategies used by borrowers include:
- Sale of completed units.
- Refinancing to a buy-to-let mortgage with the same provider.
- Remortgaging (you may have to provide an agreement in principle before getting funds)
- Long-term development finance
If your exit strategy consists of selling residential properties at a premium location, your application is more likely to be approved. It is because the lenders have confidence in a timely sale.
Initial Deposit
Bridging lenders do not provide you with 100% financing. You have to put in an initial deposit. The larger the initial deposit, the more chances of your approval. For example, a deposit of 40% will give you the widest choice of lenders and better rates. With a deposit of less than 30 %, you will see your pool of lenders shrink considerably, and the interest rates also go up.
Experience In Development
With a positive development experience, you will provide more confidence to your lender. Your track record shows that you have the ability to complete your [projects successfully. It will help you in finding lower rates and higher LTV.
If you are a new developer, you must make your application stronger and find a lender that is sympathetic to your situation.
Credit Score
A credit score does not directly impact your ability to get a bridging loan. If you have a strong exit strategy, a lender is more likely to approve your application. However, you can get a bridging loan at a low-interest rate if you have a good credit score.
Your Current Financial Condition
Although bridging loan providers are more focused on the property than individuals, some want to understand borrowers' financial circumstances to find out if they can repay the loan amount.
For example, it is possible to take out a bridging loan with no income, but a lender would like to know how you would finance the development.
How can you get a Property Development Bridging Loan?
First, you need to shop around or research to find the right lender. Once you choose a lender, follow these steps to give yourself a good chance of approval:
- Work out a business plan or find how much you want to borrow.
- Build an exit strategy and realistic timeline.
- Make an inventory of your assets in case you need additional assets for security.
- Think creatively and ask questions to your lender to make things clear.
Fill in the bridging loan application and provide all the necessary information. The lender will assess your application, and you will get a quote if you meet the eligibility criteria. If you accept that quote, the process will go further, and you have to provide all the required documents. After the completion of the application process, you will get the funds transferred to your bank account.
Is Bridging Loan Available For Land Development?
Bridging loans for land development are loans for land without any buildings. All lenders do not offer such loans.
With a little research, you can find lenders offering bridging finance for land development. You can use such loans to purchase land with or without planning permission. However, most lenders prefer you have planning permission in place. Since there are only a few members operating in this niche, it is important to find the right one to avoid overpaying.
Always keep in mind that the interest rates of bridging loans for land purchase or land development are higher than the other types of bridging loans because the land is less liquid.
Final Thoughts
Bridging loans for property development is a beneficial funding option for those who need quick funding to complete their projects. You can take out such a loan to renovate a property or build it from scratch. You may find a number of lenders offering different types of bridging products, so it is vital to research and find a lender that meets all your needs and offers suitable interest rates. You can improve your chances of approval if you have a viable exit strategy, experience in property development, a good credit score and more than a 30% initial deposit. You can use bridging loans for any legal purpose, and loans will not disturb you as long as you are able to repay the loan amount. We hope this article helps you understand bridging loans for loan development, and now you can make a better decision about whether you should take out such a loan.
