Interim financing, have you heard of it or does it sound entirely alien? Regardless, we teamed up with Alternativebridging.co.uk for a more in depth view about the subject. Have you got your pen and paper at the ready? Because we surely do, time to take down some notes!
Interim financing is described as the process of obtaining a smaller temporary short term loan arranged to cover one’s cash needs until a larger long-term loan is finalized, approved or made available. In other places, interim finance is referred to as bridge, caveat and swing loans.
As its name suggests, it works to bridge or connect the gap between two points of time namely when cash is needed and the availability of permanent funding. It can be utilized by both individuals and organizations for purposes of personal or corporate transactions.
Interim financing can be pretty much used anywhere and to further illustrate its use allow us to share two examples, one from a personal point of view and the other at a business perspective.
Example #1 – A couple wishes to buy a new home for their growing family. They plan to finance it partly with savings and a mortgage. The husband takes out a mortgage and waits for the approval and cash release. The problem here is that buying a property comes with initial costs. It’s not just the purchasing price of the home. Although the couple managed to save up, it won’t suffice to cover the initial expenses such as the security deposit and down payment. To solve the problem, they take out a bridge loan.
Example #2 – A shoe manufacturer gets a huge order from a new client. The thing is it doesn’t have enough liquid cash to cover the costs of raw materials. The client is willing to provide an initial part payment however it shall be made available in a week’s time. Production has to start immediately as the machineries and labor will only be able to produce a specific number of outputs per day. To keep production from being disrupted and to meet the deadline, the shoe manufacturer takes on a swing loan to cover for the initial cost of the raw materials.
Interim Financing is nonrestrictive meaning that it can be used by borrowers in whichever way they want, allocating it to their various needs. Furthermore, it has flexible payment options allowing users to close it prior or at maturity.
When acquiring a real estate asset, financial needs will vary. In most cases, they can be categorized into short and long term needs. A popular and widely used example of the former would have to be alternative property finance.
Such method has been used by many investors to help them in their purchases and deals particularly in terms of short term requirements. As a form of interim financing, bridging loans connect the gap between immediate needs and a permanent yet to be available financing source. We all know that majority of fixed asset financing mediums take time to be made available considering the values concerned. To remove the risks, the drawbacks and the delays, the said method is utilized by many.
Now that we’re into the topic, you may be wondering what immediate and short term requirements would be provided for by bridging loans. Below is a list of some of them.
Research Costs – Finding the asset you need and would want to buy is not as easy as doing your weekly grocery. You have to consider many things and put into account a number of important factors. You’ll have to research too and with all these comes the costs of such activities.
Professional Fees – You will hire several professionals even before you get to close on the property you like such as but are not limited to the following.
Lawyer: Contracts and titles need expert knowledge. Legal requirements and papers will need a professional to handle them.
Agent: If you’re not capable of or don’t have the time to go research properties yourself, you’re likely to hire an agent or broker on your behalf.
Surveyor: Before you buy an asset, you have to get a surveyor to assess and examine it physically, financially and legally.
Security Deposit – This is a part of the selling price that buyers pay the seller to show sincerity of the purchase. This prevents the latter from selling the asset to someone else.
Property Taxes – Depending on the location, value and type of asset you are buying, you are bound to pay taxes for it upon purchase. This is something that you have to prepare for beforehand.
Down Payment – This is the initial payment that the seller requires especially if you’re not paying for the acquisition for full in cash. Without it, you won’t be able to garner the rights to a purchase.
You’ve probably heard about commercial bridging finance and got yourself scratching your head wondering what it’s all about. Worry no more because we are here to help you get to know more about it and guide you in determining whether it fits the bill for your needs. Are you ready? If you are then read on!
Commercial bridging finance is first and foremost an interim financing method. In other words, it is a funding mechanism designed to provide short term loans to fund immediate liquidity needs until permanent long term finance has been acquired and made available. This is very common in real estate acquisitions considering that they often require significant amounts of cash to fulfill the sale requirements and buyers will likely use permanent sources that need more time to process or to be made available such as but are not limited to bank loans, mortgages, proceeds from a sale and future income.
As its name suggests, commercial bridging finance is directed to the acquisition of assets intended for business use and purposes such as office space, showrooms and shops to name a few.
As mentioned earlier, it is obtained to bridge the gap between a need coming due and one’s yet to be available permanent source of funds. This makes it a stop gap measure that will help businesses in ensuring an absence of any operational delays and disruptions.
Moreover, it is used to prevent risks such as those acquired from opportunity losses. These are those costs that one absorbs after having foregone a great deal or opportunity that would add value and benefit the business.
Commercial bridging finance is also a powerful tool that enables buyers to save time. Most commercial assets tend to appreciate in value overtime especially if they are strategically located within the heart of the city, a business hub or wherever there is heavy foot traffic. Buying now will almost always cost cheaper than doing so tomorrow or in the days to come.
It is also used to save up on costs particularly that on rent. Since entrepreneurs can already acquire and move into the new asset with the help of commercial bridging finance, they no longer have to rent a space while evacuating the one they are in to make way for its sale. This is beneficial as it helps cut down costs and hasten the move without deliberately creating too much downtime and disruptions in operations.
Bridging loans are a type of short-term credit designed to bridge the gap between two transactions thus earning it the title of a stop gap measure. Companies use them to cover shortfalls that occur when a need arises but the intended mode of finance falls short of time, either unavailable or still in the process of being so.
To better illustrate, www.alternativebridging.co.uk give you an example. First we have a clothing shop that’s on its expansion phase and is planning to move from their current office to a bigger one to support the larger demand. It applies for a bank loan in order to acquire the new office that it has chosen. However, it is of no secret that such type of credit can take a considerable amount of time from application to approval. The process is really meticulous and long. Now the shop faces a risk.
What if the loan does not arrive on time and one cannot provide for the down payment within the seller’s allotted period? What if another buyer shows up with the money? Surely, it’s going to miss out on the opportunity to acquire the said asset. To avoid that altogether, a bridging loan may be used. It can provide for the upfront expenses like the down payment to lock in the deal and paid out using the bank loan as soon as the cash has been released.
Bridging loans benefit companies not only in the avoidance of opportunity loss as illustrated in the example above but also in many other ways as follows.
It requires far less requirements allowing for the entire process to become relatively fast. This is in stark contrast to traditional credit like bank loans and mortgages that take weeks or even months before cash is released. A bridge can take as fast as a few days time.
It is short term in nature. In other words the liability or burden only lasts for a short while, months for most, and would not span for years and be a familiar item on one’s financial statements. We all know that the longer a loan lasts, the more burdensome they become.
Repayment is very flexible. Companies who take out bridging loans have the liberty to pay it out even before maturity if it can and wishes to or later on once the long term and main mode of financing has already been made available.
Bridging loans are a type of interim financing that allows borrowers or users to purchase or acquire, say a property, in a timelier manner by providing them with their short term needs in cases where their main source of financing is not yet available or is deficient for the time being.
Just like any other mode of finance, bridging loans can either work for you or against you depending on several factors. Their proper use, their intended purpose and the users themselves can dictate whether or not it is the best funding option to choose. It is important that you assess things cautiously and wisely to come up with the best decisions.
The speed in which bridging finance is processed and made available is considered significantly quick in the business market. This is in stark contrast to standard loans and mortgages that may take weeks or even months. As a matter of fact, some providers can make the fund available in a matter of hours or days depending on the terms and amount involved.
Lesser paperwork is required and needed when applying for it making it a lot less troublesome and fussy to apply for.
They help eliminate opportunity losses by providing cash quickly to aid in your purchase whatever it may be in nature.
Payment is pretty flexible and you can close it down earlier than its maturity date if you so desire.
The use of the amount obtained from bridging loans is non-restrictive unlike other credit sources. You can use it in any way you want to fulfill your short-term needs.
Using a bridge for long term financing can prove to be quite expensive compared to standard loans and mortgages. This is why they are only supposed to be used for short term and interim purposes and not in the long run.
Interest rates are higher too given the higher level of risks burdened by the provider. However, bridging loans should not be shunned off as expensive if their use is only for a short period of time.
You may have already heard about bridging loans, what they are and their benefits. Still, you’re not all out clear as to their connection to your dream home. How exactly can they help make that a reality? Allow us to clue you in as you read on below.
For starters, let us define bridging loans. They are a type of interim financing that provides for short term liquidity needs such as the initial expenses required by the seller or agent of your chosen house. Take this scenario for example. We all know for a fact that residential properties have significant values. They do not come cheap. Even the smallest and simplest ones will have you shelling out some considerable amount cash. Not everyone has that much funds waiting idly in their bank accounts thus other fund sources are opted like bank loans, mortgages, sale of other assets or future income. The problem with these aforementioned sources is that they may not be made available in time. If you can’t provide for the down payment or default during your first installments then your dream home goes to the next buyer in line or gets foreclosed. Dream crushed? Oh no just not yet. This is where bridging loans step in.
This interim financing method allows you to draw your needed funds even on short notice to provide for your asset acquisition needs and in the case of the scenario above, the down payment and initial installments. This ensures that you do get to acquire and buy your dream home.
What separates bridging loans from traditional lines of credit has to be the following factors:
There is less paper worked required so buyers will not have to spend a considerably long period to prepare all the needed documents.
The funds can be made available in a matter of days. You do not have to wait out for so long just like bank loans, mortgages, proceeds from the sale of other assets or your future income.
It prevents opportunity losses at all costs. By coming up with the needed initial expenditures, your dream home will not be lost and given to another buyer.
It is fairly easy and flexible to close out bridging loans. You may pay as soon as you have the means to even before maturity or you can choose to wait for the arrival of your bank loan, mortgage, proceeds from the sale of your asset or your income and use that to pay out the bridge.
It is a given fact that the process of application down to approval and release of a loan can be time consuming. They are effective though with proper timing and effective planning but there are simply cases where one would wish that loans were made available faster. One of these situations would include the acquisitions of real estate properties. This is where Alternative Bridging introduces us to a new option of doing things without the burden of excessive costs and with the benefit of time and savings.
Bridge loans could be the answer to your problems. How do these work? First, here’s a short roundup of its definition. Bridge, swing or caveat loans are a type of short term financing. It works as an interim fund that fills in the money gap until the permanent funds are obtained from a loan, mortgage or sale of other assets. They are often taken out for a period of weeks to months, a year or two depending on the arrangement and status of the permanent fund source. To put it simply, it provides for the needed cash when you need to close a deal on a certain property and your loan has not been completed or realized at the moment.
Now this is a common question. Why can’t buyers simply wait for their loan or mortgage to be approved and released? What’s all the fuss and hurry all about?
If you are acquainted with the market and the industry of real estate, you should know by now that the prices of fixed assets are not stable. They fluctuate mostly up and seldom down. With the price tags of real estate assets going higher and higher, it could be wiser to get hold of an acquisition early on.
Additionally, a good property is one that is tagged to have all the factors checked: location, price, value, maintenance and the list goes on. Assets like these do not stay up for sale in a long time. Many prospective buyers will want to get hold of it so time is a huge factor. Bridge loans provide for the needed down payment whilst your loan is still being processed. The deal is sealed and you can now move into the property. Once the loan arrives, this is then to be used to pay out the bridge as well as the remaining balance on the property.
A bridge loan is a temporary loan that provides the financing you need to settle the down payment on a new home by borrowing off the equity in the existing home. It is also a type of loan anticipation loan and a short-term one at that that is undertaken while you are waiting for the completion of a permanent and long term fund. They act as a bridge between the existing property that you are selling and a new home that you are buying
BENEFIT # 1: IT SAVES YOU TIME. – This is by far a very vital characteristic and benefit of bridge loans. You do not have to wait far longer to achieve your desired outcome as there is a way to hasten things up. You can move into your own home without having to wait for months after the sale of your old property or the approval of your mortgage.
BENEFIT # 2: IT ELIMINATES OPPORTUNITY LOSS. – At times you stumble into a quality property and a good deal. Surely, things like this are such a pity to miss. You cannot just let your dream house go without a fight and if you do then imagine the opportunity loss that you would possibly incur. You can close the deal and fund for the down payment immediately.
BENEFIT # 3: IT HASTENS THE DEAL. – Because you do not have to wait out for your old home to be sold or for your mortgage to be approved and completed then the bridge loan helps hasten up and close the deal by providing for the upfront costs.
BENEFIT # 4: IT IS TEMPORARY ONLY. – Since it is first and foremost a kind of short term loan, it is then temporary and do not have to be a burden for such a long time. In the event that you plan to fund your home purchase with a long term mortgage, then this assures you that you are not burdened with two. Plus, the bridge loan can be paid up by your mortgage once it has already been made available.
BENEFIT # 5: NO MORE RENTING. – Lastly, since a bridge loan will help you purchase and make a down payment for your new home then this eliminates the need to rent at any given costs. You can already move into the new property while you wait for you old one to sell or your mortgage to arrive.
The public’s interest regarding property bridging finance has grown over the years and we cannot blame them at all. This type of finance or loan is quite flexible and is for a short term period only. They are often used in two instances. The first is when you need a quick source of down payment to close a sale while your main source of credit is still on its way. The second is when the sale of your current property has not been furnished yet and so you would need a source of fund for the time being. Families, individuals, landlords and businesses all benefit from it.
The OPEN BRIDGE is the type where there is no fixed exit date for the lender. It runs its course for a certain period but no particular date is stapled.
The CLOSED BRIDGE on the other hand is where there is a definite exit date.
So what are the pros and cons of using this finance method? Read on below for you to better be able to weigh your options and decide best.
PRO # 1: SPEED AND PROMPTNESS – The main reason why they are used is because they can be accessed faster than your regular mortgage loans. This means that if you need to make that down payment for your dream house to secure your interest in it then you can. You won’t lose it from another prospective buyer.
PRO # 2: PAYMENT FLEXIBILITY – You can choose to pay earlier if you already have the resources or later on when the main line of credit has already been approved and is accessible.
PRO # 3: NOT CONSTRICTING AND LIMITED – Unlike bank loans, bridging finance does not limit how you will be using the fund. You will not be asked to spend only this part of your income or to halt from certain expenditures.
PRO # 4: THEY ARE SHORT TERM – You do not have to fear that you will be burdened while repaying it for the years to come.
CONS # 1: A LITTLE HIGHER ON INTEREST RATE – It is however a little more expensive when it comes to interest as compared to regular mortgages.
CONS # 2: EXPENSIVE IF PROLONGED IN USE – Because it has been designed to work and be benefited on a short term basis then using property bridging finance as your main credit source will become expensive overtime.