What is Bridging Finance?

Let’s start with the basics.

What is Bridging Finance and How Does it Work?

A bridging loan, as the name suggests, is used to ‘bridge a financial gap’ over the short term. This can be anything from 24 hours to three years and is usually related to commercial and private property. For example, an individual purchasing at auction is required to pay immediately but may not have funds available from their current property. This is where short-term access to external finance can come into its own, particularly when dealing with sums requiring a more bespoke approach, such as over £5m. 

Up until the sub-prime financial crisis of 2007/8, the market was largely dominated by high-street banks, but the picture over the past decade has changed markedly. In part, this is because everyday institutions have taken a more risk-averse approach to financial products, which bridging loans are deemed to fall under. They also weren’t best placed or agile enough to deal with the requirements and capital involved with high-end, luxury property sales, especially in a post-bailout world. This, though, was not the end of the story. As with most things in the financial world, when a gap in the market forms, it’s quickly filled through alternative methods. 

Types of Bridging Loan Arrangements

There are generally two types of bridging loans:

1. Closed Bridging Loan: This loan type is used when there is a defined repayment date, such as when the borrower has a guaranteed sale or funding lined up. It is often easier to secure as the repayment is considered more certain.

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2. Open Bridging Loan: This type is used when the borrower does not yet have a set repayment date. It is more flexible but generally carries higher interest rates due to the increased risk for the lender.

Why a Bridging Finance?

But why would you choose this type of financing? Well, there are arguably three main reasons why a bridging loan is the right choice for sums more than £5m. 

1. Speed: Even with a private bank, onboarding, approval and regulation mean it can often take, despite the best intentions, 6-8 weeks for money to exchange hands. For obvious reasons, this may not work within the timeframe you had in mind. 
2. Privacy: A popular method of financing is through specific bridging lenders or other high-net-worth individuals. This often results in fewer regulatory hoops to jump through, which inevitably speeds up the process and grants the client a greater degree of privacy – a price usually reflected in higher levels of interest compared to the more traditional, slower financing options. When looking at the luxury housing market, the interest premium connected to privacy may be a price worth paying.  
3. Flexibility: Due to dealing with smaller, nimbler teams, you tend to come into direct contact with decision-makers sooner rather than later. As a result, agreeing on a tailored, flexible plan is typically easier compared to a mainstream institution. 

The Post-Pandemic Lending Landscape

While the global Covid-19 pandemic has impacted many areas of finance, bridging loans have proven resilient in a rapidly changing financial environment. Specialist bridging lenders were not hindered by the same red tape and bureaucracy as traditional banks, allowing them to assess situations on a case-by-case basis and respond faster.

Bridging finance providers have adapted to the post-pandemic world, leveraging technology and close relationships with surveyors to facilitate quicker and more accurate valuations, even in uncertain times.

How Bridging Finance Helps

For example, a client purchasing a luxury London apartment at auction required immediate capital but was awaiting the sale of their existing property. A bridging loan enabled them to secure the property without delay. They repaid the loan once their previous property sold, demonstrating how bridging finance can offer the liquidity needed to act swiftly in high-stakes property transactions.

How can Enness help?

At Enness, our independent status allows us to talk with the entire market of bridging finance providers. We don’t have any restrictions, which has allowed us to build strong-and-trustworthy relationships with a wide variety of lenders. We will listen to your needs and tailor our approach accordingly. We know who is going to complement your income and plans, without the need for a scatter-gun approach to finding you the right deal. 

If you are unsure whether a bridging finance broker can help with your current situation and plans or perhaps you are looking for an improvement on rates, feel free to call us for a no-obligation chat.