A bridging loan can provide short-term financing for a variety of purposes. Here are some common questions about bridging loans:
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What is a bridging loan and how does it work?
A bridging loan can be taken out on top of your current home loan until the property is sold. This type of short-term loan is a very fast and easy way to access your equity during the sale period.
A bridging loan is typically used to ‘bridge the gap’ between buying one property and selling another. In addition, a bridging loan can be used for personal or business use.
Why do borrowers select a bridging loan?
Bridging loans are increasingly popular for many reasons, including:
- Bridging loans can be used for personal and business purposes.
- Bridging loans are usually processed and funded quickly.
- Bridging loans have flexible payment terms.
- There are numerous providers that provide bridging loans, including banks, non-banks, fintechs, specialist lenders and private lenders.
What are the types of bridging loans available?
In Australia, the two types of bridging loans are: closed and open bridging loans.
Closed bridging loans are applicable when you already know the date when your property will be sold by. Open bridging loans could be useful for those who haven’t found a buyer yet; they don’t have an agreed settlement date.
What is the interest rate for a bridging loan?
The interest rate for a bridging loan varies from one lender to another, meaning, it depends on the type of bridging loan lender.
How long does a bridging loan usually last?
Similar to rates, the loan terms vary from lender to lender. Commonly, bridging loans are taken out for three to six months (though sometimes up to 12 or 24 months).
What documentation do you need to apply for a bridging loan?
Again, different lenders will have varying requirements to secure this short-term financing. However, the common ones are the following:
- Tax returns
- Business plan
- Business and personal bank statements
- Business financial statements
- Certificate of incorporation
- Other business legal documents
However, some lenders only require your most recent mortgage statement and council rates notice when processing loan applications.
How long does it take to process a bridging loan application?
This also varies as it depends on the bridging loan provider. With some lenders, your application can be processed quickly, and the funds are released within a few days from application.
How do I apply for a bridging loan?
The trend in the financial world has changed. An online application is now increasingly preferred as it’s quick and convenient. This helps avoid the cumbersome brick and mortar visit to banks and credit institutions. Many lenders allow borrowers to apply for a bridging loan online. The application criteria and processing times vary from lender to lender (fintechs, non-bank and specialist lenders tend to require less paperwork and have faster processing).
Can I get a bridging loan with bad credit?
Bad credit reports will remain on your file for years. This is why many people with bad credit find it tough to purchase a property. The good news is that an increasing number of bridging loan lenders accept credit impaired borrowers as long as there’s a sound exit strategy (how you plan to repay the loan).
Having a bad credit in the past doesn’t define your ability to pay today. Bridging loan lenders look into your property as your asset that can back up your ability to pay.
When is a bridging loan useful?
Common uses for bridging loans include:
● ‘Bridging the gap’ between buying one property and selling another
● Renovations or repairs on a property
● Raising capital for a business
● Business expansion
● Buying a new car
● Large, unexpected expenses
● Debt consolidation
What are the benefits of a bridging loan?
The benefits of taking out a bridging loan include the following:
- Bridging loans are usually processed quickly and easily, with minimal paperwork.
- Bridging loans can be used for a variety of purposes (business or personal)
- Bridging loans are renowned for being flexible, including the loan term and repayment schedule.
- Bridging loans offer you the opportunity to not miss on a property you’ve been dreaming of whilst waiting for the current one to sell.
- Bridging loans free you of pressure to sell your current property in a hurry, giving you more chances of profiting from a better price.
- Bridging loans can be availed whether the prospect property is ready for occupancy or requires fixing structural deficiencies.
- Bridging loans help avoid or reduce the cost of storage or temporary rental.
If you need to move quickly to purchase a property or seize an opportunity, a bridging loan could be worth considering. Ultimately, your best move should be taking out a bridging loan only if you completely understand how it works and what obligations await on your part. Your finance broker is best placed to ensure you’re obtaining the most suitable loan for your requirements.