Ever since the market meltdown most lenders have kept tight their lending underwriting which has made it harder for people to obtain finance. This has especially affected people hoping to obtain mortgages as a favorable credit history is again essential and much larger deposits are required.
The tight lending restrictions that are influencing most lenders have lead to people failing to get the finance that they require. Some people have investigated other options for raising finance instead of putting an end to their plans. On many occasions bridging finance deals have been another option, even though it has to be said not always a smart alternative.
Its very important that you bear in mind that bridging finance options are only meant as a short term loan facility so therefore must be paid back in 6 to 12 months. A bridging loan can be the cheapest option for raising finance over a short period of time, but they generally have a high month-to-month interest charge causing them to be uneconomic if used as a long term loan facility.
The additional positive aspects of bridging finance are that they can be arranged quickly because of the more adaptable underwriting criteria. It is this plus point that means they are well liked as a method of finance once requests through alternative channels have failed! In addition to being helpful when cash is required in a hurry, bridging lenders will use a large variety of property as security. This can include derelict property, land and buildings needing renovation. Due to the flexibility in lending on property requiring work or significant repairs, bridging loans are often used as an effective way to finance building projects.
Nevertheless there are other finance solutions than bridging loans that can be taken advantage of for building projects. With many parallels development loan deals can also be a good alternative for resourcing building, renovation and construction projects. The particular advantages that development finance deals have over bridging is they can be organized with lengthier terms, in many cases up to 3 years, and the funds can be released in stages as it is required. This has got the main advantage in that interest isnt actually being incurred on money until it has been used once the project begins and develops.
The firms who offer development loans are experts with regards to building projects so can prove to be helpful and can structure finance facilities that will be truly useful to the venture.
In terms of bridging loans, as soon as the development has been completed the property or house will be sold and the proceeds used to pay back the development finance. On the other hand the completed property can be refinanced to settle the development funding and offered to the renting market.