Can You Use a Bridging Loan for Short-term Financial Gaps?
Recently updated on January 10th, 2023 at 06:00 pm
Financial gaps or lack of funds can come in many forms at any time. House renovations, investments, bills and other unexpected expenses can put financial pressure on both individuals and families.
Fortunately, financial assistance is available to help people through tough times.
One type of loan that is increasingly used for short-term needs is a bridging loan. Bridging loans are commonly used to pay expenses, debts, and other personal or business bills.
Whilst bridging loans are widely available across Australia, finding the right lending partner and loan package can be challenging. This is because every financial circumstance is unique, and you need the right professional to understand your needs and provide you with the most suitable solution. A finance broker is well-positioned to help navigate this process.
Let’s see what a bridging loan is and how Mango Mortgages can help you.
What is short-term bridging finance?
Short-term bridging finance is a quick way to access funds without going through the time-consuming process typically involved with traditional lenders.
A bridging loan is a form of short-term finance that can be used for many purposes.
Bridging loans help people in transition by providing them with a temporary funding source. For example, you may have found your dream home but haven’t yet sold your old one. In this case, a bridging gap loan would help finance the purchase of the new property until the sale of the old one is complete (or in other words, a type of loan helps to bridge the gap between two financial transactions).
Another potential advantage of this type of loan is that it can be used for business purposes, including purchasing property or equipment, closing cash flow gaps or financing business expansion.
Types of bridging loans
Some of the typical bridging loans that you can choose from are:
Open bridging loan
A bridging loan that does not have an agreed settlement date has a general loan term, usually 6 or 12 months. This type of loan could come in handy for someone who hasn’t found a buyer for their current home yet. Lenders often require evidence that the original property is up for sale when taking out this loan.
Close bridging loan
A closed bridging loan has a predetermined end date, after which the borrower pays off the remainder of the loan. This type of loan is ideal for borrowers who have agreed upon sale terms for their current property and know when the contract will settle.
How long can you have a bridging loan in Australia?
The loan terms will vary depending on your chosen bridging finance company. The length of time you can have a bridging loan in Australia also depends on the purpose of the loan and your financial situation. However, most short-term bridging loans in Australia have a loan term of up to 12 months.
6 months
Each lender will vary with their loan term, though it’s common for the minimum loan term to be up to three months or six months.
12 months
Similarly, the maximum loan term will vary from lender to lender, but it is usually around 12 months. The maximum loan term is also dependent on its purpose. For instance, if you intend to finance the purchase of a new home before selling your old one, then the full loan term is typically 12 months in order to provide time to sell your old property and use the proceeds to repay.
24 months
Some bridging finance companies will extend the loan term to 24 months for certain situations.
36 months
In some cases, a bridging loan may be extended to 36 months, depending on the funds usage and the corresponding exit strategy (how you’ll pay the loan back).
What can I use a bridging loan for?
Bridging loans can be used for a variety of purposes, including:
Purchasing equipment
Most businesses will need new equipment from time to time – whether it’s a new computer system, office furniture or manufacturing machinery. A short-term bridging loan can help you finance the purchase if you don’t have the available cash (or if you don’t want to negatively affect your cash flow with a large payment sum).
Closing cash flow gaps
If your business is going through a tough patch, then a bridging loan can help to tide you over until things improve.
Financing business expansion
If you plan to expand your business, a short-term bridging loan can help you finance the associated costs. This could include anything from opening a new office to launching a new product line.
Buying a new home before selling your old one
If you have found your dream home but haven’t yet sold your old one, a bridging loan could help finance the purchase. This allows you to sell your old property and use the proceeds to repay the loan.
Investing in a new business opportunity
If you want to invest in a new business but don’t have the available funds, then a bridging loan could help you finance the venture until your business generates income.
Key takeaway
A short-term bridging loan can help you overcome financial difficulties or take advantage of new opportunities. It offers quick access to funds that can be used for various purposes.
At Mango Mortgages, we offer customised loan products, inducing bridging loans that fit different needs and purposes. You can apply online here.
Mango Credit
Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management