While the application process associated with bridging finance is generally far quicker and smoother than that of mortgage applications, there are many factors that can lead to an application falling through or even declined, especially by mainstream bridging providers. Here we discuss some of the common reasons bridging finance applications can get stuck, sometimes permanently, and how you can best prepare your application to minimise the risk of rejection and where to turn for professional support should you need it.
Bridging finance is a short-term financing solution that “bridges” the gap when access to funds is needed quickly to put a project into motion, oftentimes while waiting for longer-term financing to come through. One of its many advantages versus mortgage lending is its versatility, meaning bridging finance can be a suitable solution for many different scenarios. As a result, some borrowers may not even be aware that bridging finance is an option for them.
A wealth of providers and choices
Like many aspects of the financial services market, there are many different providers of bridging loans to choose from, including mainstream high street providers as well as more boutique specialist lenders. So from the outset, choosing the right provider for your needs is critical, which is why often working with a broker is the best way to find the best provider for your needs. Especially as it can be hard to both identify and approach the best boutique lenders as an individual borrower, as they are not always easy to find.
Of course different bridging providers will typically have different products to choose from and also different lending criteria, and while one lender might approve an application, another may not. Dealing with a rejected application, or coping when one gets stuck, can also be extremely frustrating and difficult to deal with. This is particularly the case when time-sensitive plans or other financial implications are involved, so let’s start by taking a look at some of the most common reasons that this might occur.
- Inaccurate documentation
Many application forms for bridging finance can be hard to navigate, especially if you’re encountering them for the first time.If an application is completed incorrectly, or fields are skipped and/or left blank or key supporting documents are missing, the application process may be delayed. Or in some cases the lender may reject the application altogether.
It is very important to ensure that all of the required forms are completed, that information is accurate and up to date, and that all supporting documentation is provided to help expedite the application process.
- Insufficient security for the loan
To mitigate risk, lenders require adequate security from the borrower as bridging finance is normally secured against assets, usually in the form of a property that could be sold to meet the borrower's obligations if the worst should happen.
If the asset or property does not meet the lender’s criteria or if its value is too low, is in poor condition or has issues with its title, the loan application could also be declined. As different lenders consider security differently, this is another example of where lender selection is crucial and where working with a broker who can consider all corners of the market is highly beneficial.
- Incorrect valuations
Lenders will depend on precise property valuations to determine the loan-to-value ratio, which is a key figure when assessing any lending obligation. This is a key factor in the decision making, and discrepancies, such as overvaluing the property or underestimating associated costs, may raise red flags.And often a property survey of valuation can uncover aspects of a property that were previously hidden or unknown.
These inconsistencies can affect the lender’s ability to correctly gauge the risk associated with the loan, and could lead to a rejected application especially if the lender is not used to dealing with such inconsistencies
- Lack of employment stability
Although bridging finance is typically secured against property, as mentioned, lenders may still evaluate your employment history, income and debt-to-income levels to assess your ability to meet your financial obligations and manage your loan repayments.
If your financial situation is not stable, for example, if you have an irregular income or high debt levels, they might decline your application. In this instance some lenders will consider other potential sources of wealth, although not always. Once again, considering these dimensions up front can save frustration and delays further on.
- Poor credit history
Similarly to understanding your financial stability, lenders assess your creditworthiness to gauge your ability to repay a loan. If you have a track record of missed payments, defaults or bankruptcies, you may encounter challenges when applying for bridging finance as your credit history may put you into a high-risk category.
Invariably these aspects of one’s financial profile are unlikely to remain hidden so being open and upfront about these is always the best policy. In our experience there is always a potential pathway to lend that can be found, as long as all of the information is considered up front.
- Lack of a clear exit strategy
When applying for bridging finance, you are required to present the lender with a well-defined exit plan that indicates how you plan to repay the loan. Exit strategies can involve selling a property or securing long-term refinancing, such as a mortgage. Without a viable exit strategy and assurance that they will be repaid, lenders are unlikely to approve your application. So ensuring you have considered and articulated this upfront is key and another distinction versus traditional mortgage lending.
- Preparing for a bridging loan application
Understanding the bridging loan approval process and reasons for potential delays or rejections can help you to be well prepared for the application and to plan your transactions accordingly, with reasonable expectations.
It is possible to navigate the bridging finance independently, but it can be time-consuming especially when researching potential lenders up front. Below, we delve into the two key areas to focus on as a starting point in the application process.
- Compare lenders and loan options
Evaluating loan options from various lenders can help you understand the different terms, flexibility, interest rates, other associated fees and repayment plans, and to determine which is the most advantageous offer. It also gives you the opportunity to understand lenders’ eligibility criteria and the legal requirements that need to be met before beginning the application process, potentially helping you to improve your chances of having your loan approved.
- Familiarise yourself with essential documents
Getting to grips with the documentation that lenders typically require will help you to prepare meticulously and speed up the submission of your bridging loan application. Gather essential documentation such as your identity documents, proof of income or business accounts, if relevant, and bank statements, as well as other important information related to your loan history and documents associated with your assets, especially those linked to your upcoming transaction and/or exit strategy. By organising these and any other necessary documents ahead of time, you can streamline the application process and may even support a positive outcome.
Getting professional support from an experienced broker
We understand that navigating these preparation steps and the application process might seem “easier said than done”. But it doesn’t have to be a daunting experience. Working together with an experienced broker can alleviate a lot of the pressure. Professional brokers are able to guide you through the process, ensuring that all angles are covered and that thorough due diligence is conducted. They will help you to source the best bridging loan rates and terms for your specific needs, connect you with the most suited lender and support you in preparing for the application process most efficiently.
We can help you bridge the gap with the best offer!
At Enness Global , we are experts in sourcing bridging loans and short-term finance for many different scenarios. We pride ourselves on overcoming complexity and uncovering a well-suited option tailored to your individual circumstances. We also like to think we can help even where other lenders have been unable to, as we have worked across so many different and unique scenarios over the years.
Using our extensive network and experience, we will strive to go the extra mile to help you to secure the best terms, and ensure you don’t have to worry about doing the groundwork. We won’t delay on sourcing the most suitable bridging finance deal, so you can also move quickly on your application and avoid the potential pitfalls along the way.
Get in touch today and speak to one of our expert brokers.
The views and opinions expressed in this piece are those of the author and do not constitute advice or a recommendation. They do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals.
