What You Should Do And Not Do When Applying For A Bridging Loan?

Is it your first time taking a bridging loan? Are you confused about whether it will be a surefire for your projects or isn’t worth it?

Many other questions pop up in your mind when you think of getting alternative finance. Though the process seems pretty obvious, you want profitable lending. 

This article will help you know the ins and outs of bridging loans. It explains the dos and don’ts of bridging finance. After reading this article, you will get a list of things to hone while applying. 

Also Read: A Look Into the Workings of Peer to Peer Lending Platforms

What are Bridging Loans?

A bridging loan is a type of alternative finance that fills your financial gaps with instant money. That means you will get the funds to move on with your projects and return the money through another source of revenue. 

Though these loans have high-interest rates, they help you provide finance where necessary. People also call them short-term or swing loans. 

Things to do while getting a Bridging Loan:

There are a lot of points you should keep in mind when applying for a bridging loan. We have enlisted some of the most important ones below. 

Professional Valuation:

While taking a loan, you must sound professional to the lender. If you secure a property as collateral and the lender hire’s an RICS surveyor, you must know that your valuation will show less property value. So, keep that in mind before applying for a bridging loan. 

Extra fees:

In simple terms, people often ignore a big chunk of fees that you have to pay besides the repayments. So, if you apply for swing finance without having an idea of the charges, you will find it appalling. 

Therefore, you must keep track of what goes to the lender before securing a loan and furnishing the funds for each stage. Only this way will you understand how much profit you will achieve after repaying everything. 

Keep your credentials up to date:

Before applying, make a list of all the data required. Your lender may need everything in detail. So, your goal is to provide the data as it is. Any discrepancy in the credentials may lead to the cancellation of your loan. 

Similarly, your lender may want the details of your credit history, the plan you want to execute the loan, and the source that will repay the finance. 

So, you need to go out of the way to satisfy your lender and explain everything candidly, so they don’t think twice before approving the loan. 

Viable Exit Plan:

The exit strategy is the first and last thing that plays its part in your loan value. It’s the proper plan you will use to repay the loan. Thus, a viable exit strategy takes the lender in confidence. 

As it directly impacts your interest rate and the LTV, you can get a better chance by making a robust exit strategy. 

Things you shouldn’t do while getting a Bridging Loan:

These things are a must for a borrower to remember during the borrowing process. 

Communication gaps:

Very often, deals don’t get through due to a lack of communication between a lender and a borrower. Even after getting a loan from a P2P lending platform, you may fail to communicate things properly. Thus, if it happens, everything comes to a halt. 

Simply put, you need to address the repayment crisis to the lender. Now the lender would penalise you for not paying the instalments. 

Had they known your problems, they might have extended your term. Therefore, you shouldn’t leave your lender in the dark. 

No exit strategy:

An exit plan defines how profitable your loan will be. Often it’s the reason why loans aren’t approved in the first place. 

The lender will often ask you for a plan before putting the money in your account. So, it’s necessary to have one in your mind. They may ask you to provide any circumstantial evidence. 

In that case, you need to show them some proof. It can be anything like a mortgage plan, a house sale listing, or some other revenue proof. 

Thus, your lender may feel it easy to project your lending term and make appropriate changes in your interest rates. Also, you will know how the plan will be executed and whether it’s a safe loan for you. 

Hence, it would help if you took the pain in making a strong exit plan because not having one would affect your repayments. 

Summing Up:

Bridging loans are an alternative source of finance different from traditional loans. They’re easy to get and more profitable, despite high-interest rates.

 As they help you with instant finance, you should consider them for house purchases and refurbishment. However, like other types of loans, some points are worth noting to proceed safely. 

We have provided some dos and don’ts of bridging loans. If you have read this article, kindly let us know your feedback in the comments.