How Does Bridging Finance Work? – A Comprehensive Guide by Kinetic Finance

It is important to note that markets are not static, and when they come up with financial prospects, timing is even more crucial. In some situations, financing the property purchase or closing a business deal is necessary. That is where bridging finance becomes useful. Bridging finance is a short-term loan that ensures the buyer has the funds to fund the new home before selling the previous one or financing a business venture. This guide will discuss bridging finance, its characteristics, and how it can help you purchase a home.

What is Bridging Finance?

Bridging finance is a ready, short-term finance used to fill a finance gap between two trades. For instance, if you wish to purchase a house while holding an existing property in the hope of reselling it, a bridging loan helps you to “bridge” the period you will take to sell the existing house. Most bridge loans are short-term loans with repayment that may take at most a year.

This kind of loan is usually obtained by those people and companies that need a loan urgently, with little regard to the time required to approve the loan from traditional financial institutions. For this reason, bridging finance is usually employed to buy properties, businesses, or other important exigent requirements.

How Does Bridging Finance Work? 

Bridging finance helps borrowers get funds before acquiring permanent funding or selling an already-owned asset. Thus, it is a short-term fix covering analysed cash flow or funds shortages. It is repaid once the borrower has sold the property or obtained long-term financing. However, it is expensive compared to other forms of funding; it comes with some risks due to its short-term nature. Bridging loans has the attribute of being straightforward and can be used in buying property or even auctions.

They are usually offered based on some form of collateral, and the duration could be from weeks to a year. Currently, the interest rate charged for bridging finance is higher than regular loans, mainly because bridging finance is usually a short-term facility with short turnaround times.

Key Features of Bridging Finance 

• A Short-Term Loan: Bridge funding offers quick access to capital for a short time, ranging between 3 and 12 months.
• Secured Loan: It targets the borrowers who offer their property or business assets or other valuable items against the loan amount.
• High Cost: Since the bridging loans are short-term and the processing time is very short, they attract higher interest rates than other loans.
• Terms Can be Easily Negotiated: The exact amount of bridging finance, loan repayment period, and security forms can be discussed and agreed upon.
• Ease of Access: Bridging finance can be secured much more quickly than conventional mortgages, which can prove invaluable for those in a hurry.

Types of Bridging Loans

There are two types of bridging finance: the closed bridging loans and the open bridging loans.

1. Closed Bridging Loan

A closed bridging loan is usually taken when there is a specific date on which the borrower anticipates the existing property to be sold or when they expect to acquire permanent financing. It is less risky in the sense that there is the assurance of repayment of the resources advanced.

2. Open Bridging Loan

An open bridging loan is less rigid and does not contain a definite date for payoff known as closing date or date of redemption. Such situations may include scenarios where the borrower is not quite sure when they will be able to dispose of the property or obtain permanent funding. It is comparatively riskier and can be associated with higher interest rates.

The Benefits of Bridging Finance

Bridging finance is very useful in several ways, mainly in conditions that require immediate funding. Some of the benefits are:

• Speed of Access: The biggest advantage of bridging finance is that the money can be accessed swiftly. Bridging loans provides the opportunity to get the necessary amount of money within days rather than weeks or months needed for other financial instruments.
• Flexibility: Unlike most types of financing, bridging loans are usually within your convenience and come with negotiable payment terms. Bridging finance comes in handy for a short-term need, such as the purchase of a property, or for the long-term to finance a business investment.
• Less Requirements: Typically, bridging finance is required only in minimal documentation and can be secured against property or other valuables for quick valuation. This makes it quite suitable for those clients who cannot access conventional sources of funds.
• Temporary Solution: Bridging loans are short-term, and when they expire, the borrower is free to obtain permanent finance without being tied down.

How Kinetic Finance Can Help?

Kinetic Finance is a UK-based company that offers bridging finance solutions. They provide various financing services to individuals and companies so that you may obtain the funds you require efficiently and quickly. Kinetik Finance can give valuable advice on how to get bridging loans, the options, and which is the most suitable for you based on your experience in the industry.

Why Choose Kinetic Finance?

• Speed: Kinetic Finance aims at meeting your needs in the shortest time possible, when it comes to the processing and issuance of bridging loans.
• Specific Solutions: They offer financing solutions that depend on your unique requirements to ensure flexibility and convenience.
• Experience: Kinetic Finance - leading bridging loan company in the UK  proud with over 20 years of experience providing tailored advice and solutions for you.
• Credible Relations: Kinetic Finance believes in the dominance of long-term partnerships to provide clients with the most accurate advice and financing solutions.

Final Words

In conclusion, bridging finance can be a powerful tool as it allows managing essential financial gaps and obtaining new opportunities quickly. Whether you need to buy a piece of property or land, finance a business opportunity, or remodel your home, bridging loans offer the best temporary solution. When partnered with Kinetic Finance, you can be assured that your bridging loan process will be seamless and professional. They have a flexible financial plan to solve financial challenges that you may face and empower you to do so.