for business trading purposes. But taking out bridging loans on owner-occupied property, a regulated lending transaction, to settle or consoli- date debts must be assessed cau- tiously.
It must be
proven to be the best option for the
applicant, with demonstrable evi- dence that the bor- rower can procure a
remortgage or quick sale of the property to
repay the bridging loan in a cost-effective and timely
manner.
Financial advisers may serve borrow- ers best by suggesting they consider other options.
Discount or below market value purchases
Bridging is commonly used for dis- counted purchases as most lenders will advance funds against the market value of the secured property irrespective of the purchase price. Typically a buyer has an opportunity
to buy a property at a discount from a distressed seller who needs to dispose of it quickly and will sell at a level below what it is really worth. Another scenario is where business tenants are given an opportunity to buy their trading premises from their land- lords at a discounted price to their mar- ket value.
Often there may be a cash-strapped
landlord who needs to sell, with the lia- bility of an established and long-term tenant that represents the best opportu- nity for a quick sale of that property asset.
In both these cases, the speed that a bridging lender can work to plus the loan
The
offering against market value are hugely beneficial to the bor- rower. Post-acquisition, the bor- rower can remortgage against market
value to finance the asset onto a long- term facility.
Planning enhancement Property or development sites are often acquired with bridging finance in the first instance, so that planning can be enhanced to improve the value and mar- ketability of the property asset or to secure planning that will facilitate the drawdown of long-term or development funds from an institutional lender.
Financial restructuring At Bridgebank Capital we are seeing reg- ular applications where both trading businesses and property investors are restructuring their long-term financing arrangements with their bankers and mortgage providers. They often do this with an option to
negotiate debt forgiveness write-off deals with their existing lenders. Bridging can be used in this scenario as an interim funding solution to quickly settle existing debt, then provide the time window required to put in place new long-term finance. The above scenarios are by no means exhaustive and there are many other sit- uations where bridging can and ought to be used. The skill is thinking outside the box
from mainstream lending sources and identifying when the solution could be a bridging loan. In essence, bridging is exactly what it
says on the tin. It is project finance to solve an immediate or short-term fund- ing need.
It is finance that delivers on the
borrower’s need to facilitate an end game position of a realistically achiev- able prop er ty sale or remortgage to ensure the bridging loan can be repaid within the initial terms of the loan advanced.
guide to Bridging Finance 2012 19
GUIDE TO BRIDGING FINANCE
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