Bridging Loans & Development Finance

Bridging Loans

A Bridging Loan is a great product whenever upfront funding for a business project is required, i.e. for the refurbishment of a property before selling it. The full amount of the loan will be made available once the agreement has been signed with the lender. Bridging Loans are usually secured against an asset with an LTV of up to 75% of the asset value. The LTV is based on the asset value before any planned refurbishment.

There are no monthly capital repayments, only a monthly interest payment is due, based on the agreed interest rate. In order to secure a bridging loan, a solid exit strategy, i.e. sale of the refurbished property is crucial, as this is where the funds to repay the loan will come from. Bridging loans are usually available over a term of 9 – 18 months. At the end of the agreed term the full capital amount is due. A personal guarantee from a director or shareholder is usually required. Due diligence from directors and shareholders of the company will need to be provided.

Development Finance

This is a specialised variation of a Bridging Loan, in order to support large scale property refurbishment or new property projects. The major difference is that the LTV is not based on the original value of the asset but on the projected end value. There are, however, some obstacles to consider. Payout of funds does happen on an as needed basis in tranches and the progress of the work has to be assessed and confirmed by an independent Advisor on a monthly basis. In return the interest rates are usually slightly lower than for a Bridging Loan.