The Benefits of Using Bridging Loans in Australia
Recently updated on March 10th, 2023 at 08:46 pm
Are you looking for flexible financing options for your next property or project? If so, you may want to consider bridging loans.
Bridging loans are a type of short-term loan that can help individuals and businesses fill a financial gap. These loans provide quick access to funds and help speed up property purchasing.
Find out more about bridging loans, how they work, and why they may be a useful facility for your next property purchase or development project. Read on.
What is a bridging loan?
A bridging loan is a short-term financing facility. This type of loan allows individuals and businesses to borrow money for a short period (usually up to 12 months).
A bridging loan is most commonly used to bridge the gap between purchasing a new property and selling an existing property. It’s a popular funding source, as it enables borrowers to secure a new property while waiting for their current property to sell.
In addition to buying a new home, bridging loans can be used for various purposes, including renovating a property or purchasing a business. Bridging loans are often utilised when a borrower falls outside a traditional lendérs’ criteria or when funding is required quickly.
Why should you use a bridging loan?
There are several reasons why individual and business borrowers find a bridging loan appealing:
- To secure a new property while waiting for the sale of an existing property
If you have found a new property you want to purchase but are still waiting for your current property to sell, a bridging loan enables you to buy the new property while you continue trying to sell your current one.
- To quickly access funds for a property purchase
Bridging loans can be approved and funded much faster than traditional loans. This makes them an attractive alternative if you need to quickly access funds for a property purchase.
- To take advantage of a time-sensitive opportunity
A bridging loan can enable quick access to funds to take advantage of a ‘too good to miss’ opportunity before it passes.
- To renovate a property
Borrowers increasingly use a bridging loan to gain funds to renovate a property. Typically, the loan is repaid once the renovations are complete and the property is sold.
- To purchase a business
A bridging loan can provide the necessary funds for the deposit or the purchase of a business.
Who can use a bridging loan?
Bridging loans are typically used by individuals and businesses seeking to borrow money for a short period of time.
Bridging loans are often used to bridge the gap between purchasing a new property and selling an existing one. Or in other words, people looking to buy a new home but still waiting for their current property to sell may use a bridging loan to secure the new home whilst they continue to try and sell their current one. Businesses may also use bridging loans for various reasons, including quickly accessing funds for a property purchase, or taking advantage of a time-sensitive opportunity.
The eligibility criteria to obtain a bridging loan varies from lender to lender. In general, non-banks, specialist and private lenders have more flexible terms and appetite for credit risk than traditional lenders – and are often open to borrowers with an impaired credit ratings.
Am I eligible to take out a bridging loan?
It’s worth noting that the specific eligibility criteria for a bridging loan will vary from lender to lender. Some lenders may have more lenient criteria, whilst others may have stricter requirements. These may include:
- Credit score
Lenders will typically look at your credit score and financial history to determine whether you are a good candidate for a bridging loan. Historically, if you have a good credit score and a solid financial history, you may be more likely to be approved for a bridging loan. Though as mentioned above, non-banks, specialist and private lenders have more flexible terms and appetite for credit risk than traditional lenders – and are often open to borrowers with bad credit ratings.
- Adequate collateral
Bridging loans are typically secured loans. This means they are backed by collateral (usually property you already own or the property you plan to purchase). The lender will assess the value of the collateral and may require you to provide additional collateral if the property’s value is insufficient to cover the loan.
- Ability to repay the loan
Lenders will carefully assess your ability to repay the loan. This may include reviewing your income, employment status and other financial obligations.
Key takeaway
Bridging loans can be more expensive than traditional loans due to their short-term nature and the added risk to the lender. However, if you need to borrow money for a short period and traditional financing options are not available or unsuitable for your needs, a bridging loan may be worth considering. A finance broker is well-placed to advise you on what loan is best aligned with your requirements.
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