What is short-term Property Finance?
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Whether you are a business owner or a commercial landlord, the property market can be a great area to invest in. But with property and land being so highly sought after, acquiring these assets often requires a large capital outlay which you might not be able to afford without risking your financial stability in the process. As such you might be looking to finance the purchase instead, spreading the cost out over a period of time, which is why many business owners and property investors decide to apply for a mortgage in order to purchase property. However, if you’re not looking to enter a long-term commitment and would rather use a short-term solution you may want to consider applying for a Bridging Loan instead. But what exactly is a Short-Term Bridging Loan and how does it work
What is Short-Term Property Finance?
If you’re looking to acquire short-term property finance, you’ll more than likely be looking for a Bridging Loan. Bridging Loan agreements can be established for terms ranging from 1-12 months, though it is possible to get terms of up to 18 months if you were to use an unregulated lender. Bridging Loans are also classed as asset-backed solutions which use the property or land that you’re purchasing/developing as security and can be arranged in as little as 48 hours, depending on the complexity of the request.
Thinking about purchasing or redeveloping property? Need access to additional capital but don’t want to be tied to a lengthy financial commitment? Apply for Short-Term Property Finance or learn more about how your business could benefit.
How much capital can I borrow using a Short-Term Property Loan?
As well as the fact that they’re short-term agreements, another reason for using a Bridging Loan is that they offer up to 100% Loan-to-Value (LTV) and aren’t subject to any borrowing limits other than what the lender is willing or able to provide. This means that you could borrow all of the money you need to support the total purchase price of the property or land concerned. Plus as well as supporting purchases, Short-Term Bridging Loans can also be used to acquire property at auction and support refurbishment and/or renovation projects.
How does a Short-Term Property Loan work?
Bridging Loans are unlike any other business finance product you may have encountered. In order to understand how they work, you need to appreciate that Bridging Loans treat the Principle (capital borrowed) and the interest incurred as two separate aspects of the agreement. As such, the thing first aspect to decide on is the Principle, which will also affect the length of the term.
When it comes to deciding on how to resolve the Principal and, by extension, the agreement, you have two options to choose from: Open Bridge and Closed Bridge.
- Open Bridge - Open Bridge products don’t tie you down to a specific repayment date, but require you the repay the agreement within an agreed term (e.g. 12 months).
- Closed Bridge - Closed Bridge solutions require the agreement to be fully repaid by a specific date, which is also when the agreement matures.
Next you need to decide on how to pay off the interest that will be incurred during the agreement, and when it reaches maturity. To achieve this, you have 3 options available: Pay Monthly, Rolled-Up Interest, and Retained Interest.
- Pay Monthly - At the end of each month, you’re expected to make monthly interest payments until the agreement has matured and been resolved.
- Rolled-Up Interest - The total amount of interest that has been incurred is combined with the total amount of capital borrowed and made payable as a single repayment when the agreement matures.
- Retained Interest - This option enables you to borrow the interest you will incur for an agreed number of months, which is also subject to interest. However, this is retained by the lender and is used to help you as your business makes monthly interest payments. When the agreement has been fully repaid the lender may reimburse a portion of these funds to your business if you have managed to repay the agreement early or you haven’t used all of the interest that was retained.
How do I apply for a Short-Term Property Finance agreement?
If you’re looking for a flexible finance solution that doesn’t tie you in for a long period of time, Short-Term Property Finance might be the most appropriate means of purchasing and developing land or property. Yet although an agreement could be reached in as little as 48 hours, the success of your application relies on you having a good understanding of what lenders require and expect. So in order to ensure that you’re able to meet their demands, you need to appreciate the following aspects of your application:
Repayment strategy - Lenders will always want to know how you intend to raise the necessary funds in order to repay the agreement, which is usually achieved using the proceeds from a property sale, a sale of assets or through another finance arrangement.
Creditworthiness - Although lenders will usually request access to your business credit profile in order to understand your current financial status, possessing an adverse credit score generally isn’t used against you, but may affect the interest rate that you’re offered. So when placing an application, it's important to note that lenders will incorporate into their checks whether your business has past and/or recent CCJs, Accelerated Payment Notices, arrears, unpaid debt (e.g. credit card debt), existing financial commitments and your history of resolving debt on time.
Security - Bridging Loans are secured products that use the land/property you’re purchasing, or another from your portfolio, as collateral. So if your business becomes unable to resolve the agreement for any reason and default, it could lead to the land/property in question being repossessed by the lender.
Documentation - You will also be expected to provide a number of vital documents along with your application too, which should be prepared beforehand to avoid any unnecessary delays. Though these should be outlined in the documents sent to you by the lender when making an enquiry, you’ll often be asked to provide documents such as proof of identity, recent and past bank statements, profit and loss statements, trading accounts and the details of the land or property in question (e.g. address, freehold/leasehold and purchase/market value).
Applying for Short-Term Property Finance?
If you’re thinking about purchasing or developing property in the UK, the issue that might be causing you to rein in your plans could involve the cost outlay that’s required. But if you’re looking to spread out the expense whilst not being subject to a lengthy finance arrangement, another way of achieving your goals might be through a Short-Term Bridging Loan. However, typically carrying a high rate of interest, you’ll no doubt want to acquire an agreement at a competitive rate from a lender you can trust. Though this may seem like a tall order, you don’t need to brave the UK lending industry alone. Help is at hand.
At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer you a complete overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process, so you don't need to go it alone. Therefore, if you’re looking to purchase property or redevelop your portfolio using short-term bridging loans or even by re-bridging an existing bridging loan, apply for Short-Term Property Finance today or find out more with Rangewell.