Friday, April 13, 2007

How Does Bridging Loan Finance Work

Business and commerce is a popular use for bridging loan finance. Although many believe that this kind of secured credit is expensive there is a time and place for this kind of loan. To give a typical cost of bridging loan finance lets look at what you would pay to borrow £300,000 for a short time of a month. Now the monthly rate you pay depends on many factors, but mostly the amount you are borrowing compared to the security expressed as a percent. 70%, 80%, 85%, 90%, 95% and 100% bridging loan finance tend to be on higher rates. The percent is called LTV or loan to value. So on a bridging loan of £300,000 for a short time of a month. The rate could typically be 1.25% so you would be paying £3750.00 per month.

The borrower has various options for paying back the loan. Some prefer to spread the amount on another loan that can be paid over a term of upto 36 months. Others prefer to pay the amount on a monthly basis. Another option is to get the bridging loan for an amount of say £100,000 plus the interest of say 2 months ie £102500 in total. Therefore with this option there are no monthly payments to make, but the loan and interest is paid at the end of the specified time frame.

Typical uses of bridging loan finance are buying property at auction where funds are required in days not months. Business ventures, buying another house when you're existing home hasn't been sold. Using the bridging loan finance to stop bankruptcy or repossesion. Commercial business's who are moving premises. Venture capital for entrepreneurs. A bridge loan can be used for any legal reason provided you have adequate equity. Bad credit history and arrears don't normally affect bridge finance as the nature of the credit is short term and secured.

Damian is the owner of many finance related websites. Including mortgage, loans and debt advice.


Article Source: EzineArticles.com

2 comments:

Irene M. said...

3750 a month for an unsecured small business loan is a really fine (and easily attainable) payment amount. Sounds like a great opportunity!

Unknown said...

Bridge loans are often used for commercial purpose to retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long-term financing.
Bridging Loans