How to Ensure You Repay Your Bridging Loan on Time
When taking out a bridging loan it is important to consider how you will repay this.
A form of short-term finance, bridging loans typically have higher interest rates and shorter repayment terms than a conventional loan, most likely 12-18 months, and therefore a clear exit strategy is key.
What is an exit strategy and why is it important?
An exit strategy is your plan for paying the bridging loan back within the agreed timeframe and is key to securing a loan agreement.
A reputable lender will want your loan to succeed and work closely with you to ensure that your project timings are realistic and achievable and that the cash flow is fitting from the start. It’s a stage often underestimated by Borrowers and yet without doubt the most crucial. A loan has to be set up to succeed.
How do you repay a bridging loan?
There are several routes to exiting a bridging loan agreement with the sale of a primary or secondary property, sale of alternative investments, refinance to a longer-term mortgage, inheritance, and cash redemption amongst the most common.
How can I reduce the risk of something going wrong?
Whatever your means of exit, it always pays to borrow over a longer period than what you believe you need, than run the risk of failing to meet the deadline. Most bridging loan lenders won’t charge you an early repayment fee should you complete your loan early whereas late payment penalty fees can be high.
If you are planning to sell a property, shares or other investments be realistic about how long it is likely to take the transaction to complete. This is key at any time but particularly in a volatile market when any number of unforeseen factors could lead to delays in your plan.
Property sales can often take longer than even the most experienced Borrower anticipates, resulting from chain breaks and buyers failing their finance applications. It’s important to be protected in these situations.
Refinancing can also see a borrower run in to problems if their application isn’t fitting with a lender’s criteria. In this scenario do your research well in advance and where possible secure agreements in principle. The greater the number of lenders you are confident will refinance the property, the lower the risk.
Choosing the right lender
The best lender isn’t always the one offering the most competitive interest rates and terms. A lender steeped in expertise and with a proven track record for delivering loans that succeed is far more likely to ensure its repaid on time than a lesser experienced lender with attractive entry rates. Borrowers are encouraged to research their chosen lender wisely and enquire as to how they help Borrowers repay a bridging loan.
When things go off-track…
A reputable lender will work closely with you to not only secure a loan agreement but, where possible, ensure it remains on track.
At Mint Property Finance our Portfolio Management Team, a department with more than 150 years combined property development and finance expertise, is committed to guiding a Borrower through every stage of their loan.
Our loans are set up to succeed from the off reducing the potential for challenges. In the event of unforeseen obstacles our collaborative approach to working means that potential issues with a loan due to increased or unforeseen costs and delays in work, are identified early in the loan term rather than towards the end. This presents the opportunity for us to address the issues before they’ve escalated and it’s too late to rectify them.
The benefits are significant, minimising the cost to Borrowers caused by extensions, defaults, or renewals.
In summary
• Ensure your chosen lender has a proven track-record for delivering loans that succeed.
• Do your research. Ensure you fully understand the terms of your loan agreement.
• Be realistic when planning your bridging loan pay back strategy. There are many unforeseen factors that can affect the time or cost of a development. Allow for the unexpected.
• Secure your loan over a longer term than what you believe you need.
• Ensure you have a sound exit strategy for repaying a bridging loan.
• Stay close to your development and flag any potential challenges as soon as they arise. This provides you and your lender with the optimum amount of time to find a solution.
At Mint Property Finance we’re proud to have a 100% business success rate. Since inception in 2011 we have been proud to underwrite over £1Bn worth of loans, with £425M loans redeemed. This is without losing a single penny of investor capital. Want to know more about how we can help you? Contact the team on hello@mintpf.co.uk or 0161 710 2006; they’ll be happy to help.