Bridging loans are the rave of the moment. Individuals and businesses alike utilise these short-term loans to raise needed capital to fund projects.
Business and real estate are two areas mostly identifiable with bridging loans.
Why do people consider taking bridging loans? Well, various reasons, but these stand out:
- speedy access to funds
- less stringent documentation requirements
When taking out a bridging loan for business purposes, consider that bridging finance can be exploited by a business to sustain business operations for a clearly specified period of time.
Such business loan can be applied for based on the value of the company’s offices and premises.
The loan is then used to shore up operations as the company navigates the current period.
The loan can also be a springboard for the company as it negotiates a larger, longer term loan with more relaxed conditions. This larger subsequent loan might also go toward repaying the bridging loan.
While bridging loans often carry scary rates, they can be painless if done rightly.
Avoid the following pitfalls with taking bridging loans and you will very well be smiling at the end.
- Ignoring Interest Rates
The cost of a loan is more important than most businesses realise.
A key determining factor in the cost of loan is interest rates.
Ensure that the lender explains with the utmost clarity the interest rate and what amount you should pay at the end of the loan period.
Get a second opinion just to make sure.
Your goal is to avoid getting a loan with an interest rate so high that you find it difficult to pay back.
- Focusing on Rates Only
It’s great advise to seek low interest rates, but other factors also contribute to bridging loan calculations.
These factors determine the eventual cost and the convenience of the loan.
Worthy of note among them include:
- Discount points
- Loan-to-value ratio
- Length of time to finalise the loan
- Lender capacity to provide requested loan as specified
Keep an eye on these and you are well on your way to a fine bridge financing experience.
- Lack of a Clear Exit Plan
Just like the pros in the money and capital markets, you need a clear exit strategy at the end of a bridging financing.
An exit plan shields you from unwanted debt you are unable to clear once due.
Therefore, never borrow more than you can actually repay.
The little time associated with bridge loans can easily work against you without a good exit plan.
- Seeking a Bridging Loan Because it is Trendy
The ease of accessing bridging financing can lure many who forget that he who goes a-borrowing, goes a-sorrowing.
However, without a good reason, the process can quickly get more complicated than with the typical traditional lender.
Be sure to communicate sincere urgency as to why the loan is vital to you.
Lenders reserve the right to reject loan applications.
Now that you’re armed with the tools to help you avoid the pitfalls around bridging loans, ensure that you research extensively before approaching any lender.
