Bridging Loans Provide a Valuable Solution for Property Developers
Bridging loans are becoming increasingly popular when it comes to financing building and refurbishment projects and whether you’re a seasoned property developer or about to embark on your first project, short-term lending can be a useful fix for plugging the funding gap.
As the sector shakes off its out-dated reputation for being an expensive and complicated way to borrow funds, development lenders have seen a real increase in property developers choosing bridging loans over traditional finance. This type of flexible short-term loan, which is repaid once a project has been completed, sold or re-financed, is now more accessible than ever to property developers in need of a quick cash injection and an attractive means of development funding.
Bridging loans are useful for property developers looking to access funding for a specific issue as well as investors who want to make a quick purchase to add to their portfolio or snap up a property at auction, which they plan to sell on or re-finance within a short timeframe.
Unlike traditional methods of borrowing, historical issues such as poor credit or bankruptcy will not necessarily be a barrier to accessing a bridging loan for property developers and borrowers can lend against the value of a property, as opposed to the purchase price. A bridging loan, or development loan as some refer to them, can be used to fund almost any type of property from houses and apartments to commercial units, regardless of whether you own it already or it’s an intended purchase.
As a property developer, one of the main advantages of choosing a bridging loan to finance the cost of a new building development or refurbishment, is how quickly funds can be accessed. Development lenders can deliver a bridging loan for property developers in days rather than the weeks or months associated with traditional borrowing.
A fast and cost-effective way for property developers to access finance, bridging loans undoubtedly offer a range of helpful benefits. However, there are also pitfalls to avoid with short-term property developer loans including the common mistake of under-estimating the required timeframe for finance.
It’s crucial to agree the correct term for the loan from the outset and it’s also important to check the development lender’s policy on extensions, renewals and defaults, as well as whether there any penalties for redeeming early. While the terms of a bridging loan for property developers can be agreed accordingly, most lenders require short-term loans to be repaid within 1-2 years so having an exit strategy in place is vital.
When it comes to property developer loans, borrowers should also ask how the lender deals with releasing funds at each stage and whether it’s by valuation or guidance from a quantity surveyor.
Choosing the right development lender is essential for those who want to steer clear of running into unexpected costs and while it can be tempting to make a decision based solely on price, it’s important to consider the people you’re dealing with. Borrowers should always find out who the key decision-makers are when selecting a lender for development property finance and learn about their level of experience. Always try to deal directly with senior advisors who are able to flex with your requirements as your development project progresses.
A successful partnership goes way beyond the financial transaction and a well established development lender such as Mint Property Finance understands that every property project is unique, providing the right level of support every step of the way.