Pros and Cons of Bridge Loans

Advantages and disadvantages of bridge loans

It is very important that you weigh up the advantages and disadvantages before applying for a bridging loan. Discover the advantages, disadvantages and costs of bridging loans with the help of the UK's leading independent broker. Advantages and disadvantages of bridge loans Interim financing can be an exceptionally useful and adaptable way of financing, allowing short-term chances to be exploited. Of course, the disadvantage is that the interest is higher than with other financing methods and especially the penalties are often very punishable. Whilst bridge loans can demand an interest of only 0.

75 percent per annum, Rob Jupp, the new chair of the Association of Bridging Professionals, has warned against penalties if the loans are not paid back on schedule, usually 3 percent.

As Alan Margolis, director of bridge at United Trust Bank, says, most short-term loans are essentially similar, but where they usually differ is in relation to interest rate, fee and commission. "Potential lenders need to make a reasonable estimate of the costs and conditions of a bridge and of the capacity to repay or fund it within the time frame that has been set... Borrower attention needs to remain as focused on the conditions suggested as for other forms of financing.

Dragonfly Property Finance's Mark Posniak, Director of Business and Branding, agreed that the primary risky point is the absence of a "reasonable" exits for the borrowers, although he says this has become far less of a problem since the recent cash flow crisis because the sector has become "much more professional". In fact, he finds that short-term financiers are likely to take a much closer look at a borrower's conditions.

On the bright side, loans have increasingly become part of the general banking community and are often used by those who cannot afford themselves with "computer-generated loan values and fixed, unflexible criteria" from bank reinsurance. Both Mr Posniak and Mr Margolis have argued that a bridge should be closed by a debtor only if he has a specific way of repaying it at the end of the foreseen maturity, be it three or six month, nine month or twelve month.

According to Danny Waters, Enterprise finance CEO, "Speed and a tailor-made solution distinguish bridge loans from competing financing solutions. "The advantages of bridge loans are the pace at which they can be arrangd - in some cases only 48 hrs - and the amount of credit, which can potentially be in the double-digit million range.

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