BRIDGING LOAN LENDING CRITERIA
BESPOKE / CREATIVE / FLEXIBLE
Bridging Loan Lending Criteria
If you’re looking to obtain bridging finance quickly, it’s important to understand what potential lenders will expect from you.
Lenders perform a variety of checks before granting a bridging loan, which is why it’s important to be familiar with some of the more common checks that you can expect to encounter. The better informed you are regarding bridging loan lending criteria, the faster and easier your loan application process will be.
If you have any specific questions that you’d like to discuss, don’t hesitate to reach out to our dedicated team of financial experts at any time.
There are more than 100 loan providers in the UK, which means that the lending criteria can vary considerably, especially when comparing large lending institutions and private lenders.
Tiger Financial is able to provide our clients with bridging loans adhering to the following criteria:
Loan Sizes
Generally speaking, the minimum loan size is over £100,000. The maximum loan size will depend on a number of factors, particularly the value and strength of the asset being used as security.
The normal loan to value (LTV) is 70% of the open market value, however, some lenders can offer up to 80% for residential properties.
Hypothetically speaking, for the right project with the right assets backing it, no loan size is too big.
Term
A bridging loan is, by definition, a short-term loan. Bridging loans are most often taken out for between 3 and 12 months. However, it is not uncommon for bridging loans to be extended to 24 months in some circumstances.
It should also be noted that regulated bridging loans are limited to a period of 12 months due to (Financial Conduct Authority) FCA regulations. A bridging loan is said to be unregulated if the borrower or a borrower’s family member will not be residing in the subject property.
It’s also important to note that unregulated lenders are unable to offer regulated bridging loans.
Security
Bridging loans are most commonly secured against property or land via a first, second, or equitable charge.
A first charge is usually used if the property has no existing loans or mortgages secured against it or if the existing lender is being cleared using all or some of the proceeds of the loan.
Additionally, a second charge loan could be secured against a property if sufficient equity exists. A second charge is used when there is an existing charge that is not being cleared by way of the bridging loan.
An equitable charge is most commonly used when dealing with banks that do not wish to grant a second charge. It’s the most expensive option because it does not require the consent of any of the legal charge holders to be used.
Assets
The strength of the asset or assets that you are using as security is another very important bridging loan lending criteria.
Most lenders prefer property and land as security assets. The strength of each asset is determined by what type of asset it is (residential, commercial, land, etc.), the quality of the building or land, its commercial success and revenue, whether it’s liquid and can be sold relatively easily and quickly, its location, and its future prospects and opportunities, among other things.
Loan Use
There are a vast number of reasons for which a bridging loan can be used, including but not limited to the following:
- Buying under value from an LPA Receiver
- Purchasing before planning permission
- Purchase with the intent to change the planning permission
- Buying at auction
- Borrowing against value not purchase price
- Development and refurbishment
- Buying with a deferred consideration
- Developing an uninhabitable property
Additionally, bridging loans are the preferred route for borrowers in the following situations:
- When conventional credit is refused
- When you don’t want monthly payments
- When you need finance quickly
- When you want a non-status loan
Acceptable Borrowers
Individuals who are 18 years of age or older can apply for a loan. There are lenders who are willing to work with overseas residents and Chinese nationals as well.
Other acceptable types of borrowers include private companies, limited liability partnerships (LLP), UK limited companies, overseas and overshore companies, and other ownership structures such as pension funds may be considered.
Location
Bridging loans are available throughout the UK, including Northern Ireland.
Credit History
As long as lenders find the security to be acceptable, they will be able offer bridging loans to individuals and companies that might not have exemplary credit histories.
For the cheapest rates, some lenders might not even ask for a credit report.
Even if you have a county court judgment (CCJ), you will still be able to receive a bridging loan if the strength of the asset being used as security is satisfactory.
You don’t need a clean credit file to obtain the loan either.
Proof of Income
Proof of income is not required for bridging loans because there are usually no monthly interest payments involved. With bridging loans, the interest on the loan is paid when the loan is cleared.
Exit Strategy
Lenders want to know what your exit route is before approving your loan. In simple terms, they want to know how you plan on paying it back.
Lenders evaluate the strength of your exit strategy in order to assess the level of risk associated with giving you the loan.
Some of the most common exit strategies for bridging loans include selling the property, selling a business or business shares, refinancing, money from inheritances, or cashing in on business investments.
Monthly Interest Payments
As previously mentioned, there are usually no monthly payments associated with bridging loans. Lenders will typically add the interest into the loan in order to avoid the need for monthly payments.
Most borrowers who seek out bridging loans do so because they would rather have the interest for the full term rolled up so that they can pay the loan back all at once. This is why lenders do not ask borrowers for proof of income when giving out bridging loans.
Associated Fees and Costs
There are usually no up-front fees associated with bridging loans. However, borrowers will usually need to pay a property valuation fee. This can cost a few hundred pounds to a few thousand depending on the size and value of the property that is being evaluated.
Borrowers will also have to pay their own legal fees involved with obtaining a bridging loan.
Most lenders will charge a 2% arrangement fee, while we at Tiger Financial charge 1%.
Additional fees that you could possibly encounter during the process of obtaining a loan include asset manager fees, quantity surveyor fees, an exit fee, and specialist report fees for things such as contamination concerns or asbestos removal.
