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How to Raise Funds Quickly using A short term property loan
A short term property loan almost always requires that you offer some sort of security for the loan. You could offer up commercial or private property that you own or other substantial collateral. A short term property loan can be described as a short-term loan that a company uses to supply cash for a business transaction until a permanent solution can be arranged.
When looking into bridging finance you will come across the terms closed bridge and open bridge. Generally speaking a closed bridge is where the 'exit route' or 'settlement source' is already arranged typically where contracts have been exchanged but the funds are not going to become available in time. On the other hand, an open bridging loan means that there is not a confirmed settlement method. As with most things financial, there is a grey area between the two. The biggest things is to make sure you are arranging the right finance for your circumstances.
Because the need for a short term property loan will often crop up suddenly and without warning, it is a good idea to establish a relationship with a bank before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan dependant on the value of any security offered.
Who uses Short term property finance
In the business investment market bridging loans can be used for completing purchases quickly; for example, when property has been secured at auction. They can also be cost-effective for clients wishing to acquire property for refurbishment and re-sale. A typical use for bridge mortgage is to cover a situation where a business needs to complete the purchase on a new property before having sold their old one. They would then use the proceeds of the a short term property loan to continue making payments on the old property until it is sold.
How Bridging finance Works
A useful feature of short term property finance is that the client can repay capital at any time, thus reducing the outstanding balance and future monthly instalments. Lenders make their profit by charging interest across the life of funding. With short term property finance the shorter the mortgage period the less interest they earn, as a result the rate may be higher. Typically the term for a bridging loan runs from a few days to as long as two years. Of course, any terms can be negotiated and a motivated bank will work hard to accommodate your needs.
Some of the main purposes for which short term property finance can be used for:
- To raise capital for any purpose, pending a sale or refinance of the security property.
- To avoid bankruptcy of other financial crisis by releasing the equity in a property
- A short term property loan can be used to purchase properties at auction thereby avoiding the problem of completing the purchase within 28 days. Short term property finance is often completed in days rather than weeks.
- Buy to Let investors negotiating discounts for quick completion.
- Provide temporary funding for the purchase of a 'defective' business, pending completion of repairs.
- To safeguard a business purchase if the loan is delayed for any reason.
Because short term property finance can be based on the Open Market Value of the property it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction of bridging finance to most property investors who are often able to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to top-up the mortgage. Bridging finance can be structured so that there is no need to make interest payments each month, the interest is effectively paid in advance with any over payments repaid when the loan is redeemed.
Where to go for A short term property loan
There are now more short term property finance banks in the UK that there have ever been, so rates are coming down and terms are becoming more flexible. When dealing with a short term property finance broker do not be afraid of asking for the terms of the loan to be explained in plain English. You will often be quoted a broker fee and a lenders arrangement fee. The interest rates and any repayment charges should be made clear at the outset The best way to secure short term property finance at the most favourable rates and terms is to work with a UK Business loan Broker who understands the ins and outs of bridge loan. A short term property loan can either be based on the restricted sale value of a business or the Open Market Value (OMV). The difference is simply down to the preference of an individual bank, a specialist commercial broker will be well aware of the inadequacy and should ensure that this is made clear to the client.