A Guide to Bridging Finance In Northern Ireland
Northern Irish developers and investors have been using bridging loans for many years, allowing them to take advantage of market conditions or undervalued investment opportunities.
Being able to purchase a property quickly offers numerous advantages as it allows the purchaser to negotiate the best price and beat competitors to the deal.
Wilson Nesbitt Senior Solicitor Rowan Gibney outlines the most commonly asked questions here as a starter guide. For more specific and complex Finance matters we recommend getting in touch with him and our expert Banking & Finance team for specific legal advice, tailored to your investment needs.
What is bridging finance?
Bridging finance is quite literally short term funding which provides a ‘bridge’ to fill a gap in a borrower’s needs, until such time that a long term financial solution can be found.
There are two principle types of bridging loans available, a ‘closed bridge’ loan is a loan where the borrower and the lender have agreed, prior to drawdown of the loan, a set timeframe as to when the loan is to be repaid. The borrower and the lender will also have discussed and agreed an exit strategy. Most lenders will require that the borrower provides a detailed exit strategy to confirm whether or not such a strategy is feasible/ realistic.
An ‘open bridge’ loan does not have a set timescale for loan repayment or a detailed exit strategy. However, given the increased risks such loans may present for the lender, it is likely that interest rates will be higher for such loans.
Do you need proof of income for a bridging loan?
Any prospective lender will require evidence of the borrower’s income and assets in order to determine the total amount which can be offered to the borrower in accordance with the lenders affordability criteria.
Can 100% of the purchase price be borrowed?
Due to the increased risk for the bridging lender, many lenders will only provide a loan up to a percentage value of the asset secured against the loan. During the due diligence process the lender will instruct a valuer to provide a report on the assets being offered as security. The terms of any loan may change depending on the figures provided in the valuation report.
How is bridging finance and development finance different?
Whereas bridging loans are usually (but not always) released in one tranche, a development loan is used to fund commercial or residential development sites which are in the course of construction. The lender will release funds at certain stages during the construction process once key criteria have been satisfied. Often the lender will have a quantity surveyor who will continuously monitor the progress of the development and will provide reports back to the lender.
How does bridging finance work in Northern Ireland?
In Northern Ireland once the bridging lender has provided initial approval/ loan terms the lender will carry out its financial due diligence alongside the legal process. This often means the timescale between initial approval for the loan and receipt of funds from the bridging lender is shorter compared to those loans provided by a high street lender.
How much can I borrow?
This will depend on the assets that are offered as security for the loan and the valuation placed on those assets by the bridging lender.
How long does it take to get bridging finance?
This will depend on the nature of the security required for the loan, if there is property to be secured, the process can usually complete within 6 – 8 weeks. If there is no property element, the matter can complete much sooner.
Can you pay off a bridge loan early?
This can be done, but be aware of potential early repayment charges etc. which will be outlined in the loan agreement.
What can I use bridging finance for?
Bridging finance is often used to fund new acquisitions and general working capital requirements and provides a short term funding solution in relatively quick time.
Would bridging finance be right for me?
This will depend on your own circumstances and what you need the finance for. If you require a short term solution to a financial issue and are confident you will be able to comply with the lenders repayment requirements, such a loan can provide you with the required space until such time as a long term financial solution can be put in place. You should consult with a financial expert/ accountant who will be able to provide you with appropriate financial advice.
What is the average interest on a bridging loan in Northern Ireland?
Given the higher degree of risk for the lender, the interest charged on bridging loans will be higher than what traditional high street lenders charge on their loans. With the recent base interest rate increase by the Bank of England, the average interest rates for such loans is usually around 5% to 10%
Will I have to pay anything upfront?
This will vary depending on which lender you choose to go with. You will likely be required to provide funds to your solicitor to cover the bridging lender’s legal fee as well as pay for any valuation reports required by the bridging lender.
How are bridging loans calculated?
There will be a variety of calculations used to work out of the amount of funding which can be made available. This will include the value of any assets to be offered as security for the loan and indeed your own personal assets in the case that the loan is being made to you in your individual capacity, or if you are required to provide a personal guarantee for the loan.
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