MillanPettway303
From GunGame5 Documentation
The differences and similarities of bridging loans and development loans
Due to the market meltdown most loan providers have kept tight their lending underwriting which makes it more difficult for individuals to obtain finance. This has in particular affected people wanting to obtain mortgages in that a favorable credit history is once again fundamental and larger deposits are needed.
The tighter lending limitations which are impacting many financiers have resulted in people failing to get the finance that they might need. Some individuals have looked at other available choices for raising finance rather than putting an end to their plans. On many occasions bridging loan deals have been an alternative option, though it has to be said not always a smart alternative.
It's very important to keep in mind that bridging loan deals are only meant as a temporary loan facility and therefore must be repaid within 6 to 12 months. Bridging loans can be the most cost effective option for raising finance over a short period of time, however they tend to have a high monthly interest rate causing them to be uneconomical if used as a long term loan facility.
The additional pluses of bridging finance are that they may be arranged quickly because of the more versatile underwriting requirements. It is this advantage that makes them well liked as a method of finance once applications through other channels have failed! On top of being valuable when funds are required fast, bridging lenders will make use of a large variety of property as security. This can include derelict property, land and buildings in need of restoration. Due to the flexibleness in lending on property requiring work or major repairs, bridging finance deals in many cases are used as a method to fund building projects.
On the other hand there are other financial sources than bridging finance that may be taken advantage of for building projects. With many parallels development finance deals are likewise a useful choice for paying for building, refurbishment and construction projects. The important benefits that a development loan will have over bridging is that they can be arranged with longer terms, often up to three years, and the funds can be released in stages when it is required. This has the principle advantage in that interest isn't actually being incurred on money until it is used once the venture starts and expands.
Lenders who offer development loans are specialists concerning building projects so can be helpful and can structure finance facilities that will be truly useful to the project.
In terms of bridging loans, once the development is over the property or house will be sold and the proceeds used to pay back the development funding. On the other hand the completed property can be refinanced to settle the development financing and offered to the rental sector.
