Bridge financing is a practical short-term option for everyday funding challenges property entrepreneurs, developers, landlords, and people taking on one-off property projects. It’s an effective means to secure financing for businesses, regardless of their size. Despite the increased media attention, a few persistent myths regarding bridging finance persist to this day.
Here are four misconceptions we need to bust on bridging loans:
Misconception #1: Bridging Loans Are Only Available to Property Investors and Developers
Bridging loans are typically used by entrepreneurs and property developers who need to fund projects urgently. These funds can't wait for the next round of funding or purchase properties that need refurbishment or refurbishment, so bridging loans are seen as a primary funding strategy. While this is a common use of a bridging loan, it isn't the only use of these loans.
Bridging finance is typically available to anyone who isn't a complete first-timer to property investing. That said, you might need to prove that you have the experience and the ability to secure funding for the project.
Misconception #2: A Bridging Loan Is Short-Term Financing
The type of bridging finance loan you get will depend on the lender. Contrary to popular belief, bridging loans can typically be disbursed for anything from one month to six months or more.
The availability of bridging finance loans typically depends on your ability to pay back the cash. If you have cash flow challenges, you're more likely to be offered a loan for three months or less.
Misconception #3: Bridging Finance Loans Are High Interest and Expensive
In the early days of bridging finance in Australia, rates used to be expensive. Nowadays, this is no longer the case.
Bridging loans may be short-term loans, but they aren't high-risk loans. Since the lender can repossess the property after the loan is repaid. This is why they are much safer than a personal unsecured loan.
Misconception #4: Bridging Loans Aren't a Practical Source of Financing
A big bank balance was long gone when bridging finance was only available to people with a track record. They are available to anyone with a decent credit score and sustainable income.
Even if you have bad credit and need a bridging loan, browse around until you find a lender who would lend to you.
4 Steps in Taking Bridge Loans
Now that we have busted four misconceptions on bridging loans, here are four steps you can take to get one:
1. Submit a Loan Application to a Lender
Fill in a standard loan application form with questions tailored to your bridging loan needs. Many lenders provide bridging loans, including large banks and non-bank lenders specialising in bridging loans.
Before comparing lenders, you need to know how much money you need and how long you need it. Lenders will also seek a precise payback schedule.
2. Provide Your Credit Report
Most lenders require a copy of your credit report to ensure your application is valid. In some cases, a lender might also ask for your most recent tax return or bank statement.
3. Supply Information about Your Income and Assets
Your income and assets will be used to help determine your ability to repay the loan. A lender will also look at your credit history, including defaults, bankruptcies, or court judgments. Most lenders will discount your application if you have any defaults or court judgments.
4. Submit Your Property Portfolio
You will also need to provide your lender with property details for your loan assessment. You might qualify for a larger loan amount if you have several properties in your portfolio.
Conclusion
Before applying for a bridging loan, make sure you understand the terms and conditions, fees, and interest rate. Insufficient research may result in a disadvantageous loan set at less than favourable rates.
If you need a bridging loan in Sydney, Wealthy You provides a range of mortgage options so you can reach your financial goals and needs. We are the best mortgage brokers making loans and refinancing your home easy and stress-free. Contact us today!
