Bridging Finance

What is Bridging

Bridging finance is short term finance that is quicker to deploy than a traditional mortgage product and usually has limited exit penalties, allowing a client to move in and out of the finance arrangement quickly and cost effectively. Bridging Finance can be used in a number of situations, but the key ones are as follows:

When should you use Bridging Finance

Time

If you are looking to purchase a property and the timescale is tight, perhaps it is an auction purchase, or the vendor requires a very quick sale, term debt can take several months to put in place, so a bridge can be used to acquire the property while the long-term debt is secured.

Planning

Very often bridging can be used to acquire a property where there is planning gain. The bridge would then allow the planning gain to be achieved and the value increased, thus allowing the property to be either refinanced (based on the higher value) or sold.

Add Value

Much like the planning scenario, if you are able to add to the value of a property in the short-term, you may not wish to be tied into a term facility at the lower valuation. An example of this could be to acquire a commercial property where the average lease length (WAULT) is short but you are confident that you can increase the lease length and thus increase the value. This may also apply to a vacant property where the value of the property can be improved by securing a tenant.

Exit Is The Key

Most lenders will require you to prove an exit strategy to a bridge, but it is really down to you and your broker to ensure that this exit is realistic. An exit will usually fall into one of two categories - sale or re-finance of the asset. Occasionally, it can be via the sale or refinance of a separate asset.

When Should I Not Bridge

You should not use a bridge because you cannot secure term finance at all or where a bridge provides a higher loan amount than term finance (unless of course one of the above added values applies). You should not use a bridge to raise finance for other purposes, unless you are certain of being able to repay. Essentially, you should not use a bridge in any circumstance when you do not have an exit.

Case Studies

Here are two examples where we have used bridging loans in the correct way for our clients. In both of these examples, we worked with Together Money. Working closely with the team, we were able to secure fast, effective funding and ensure an exit was available.

Commercial Offices - Time

In this case study our client secured the purchase of a large, multi-tenanted office building, off market, for circa £13m. The seller, a large US fund, required completion within 28 days of exchange for not marketing the property on the open market. We worked closely with the lender to ensure their valuation requirements and legals were in place to allow completion to occur on time. The client was then able to make some small adjustments to the lease profile in terms of break clauses.We were then able to refinance the property onto a term facility.

Residential Planning Acquisition

A second example relates to a significant residential scheme in York.

Our client entered a bidding process, via CBRE, to acquire a brownfield city centre site that while, zoned for residential in the local plan did not have planning permission in place.

Many bridging companies are cautious of sites without planning but Marc and Rob worked closely with us, and a combination of the quality of the site, their confidence in the client and in us, along with their understanding of the planning process allowed us to secure funding for the client to acquire the site on a 24 month basis.

Over the 24 months, the client was able to secure planning for over 600 units on the site. This obviously increased the value significantly and we were then able to secure finance via Octopus to repay the bridging facility and move forward with the development of the site.