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The variations and parallels of bridging finance and development finance
Due to the credit crunch many loan providers have tightened their finance underwriting which made it harder for people to obtain finance. This has particularly affected people hoping to obtain mortgages because a good credit history is once more necessary and larger deposits are required.
The tight lending constraints that are influencing many financiers have lead to people failing to obtain the loans that they need. Some individuals have investigated other available choices for raising finance instead of putting an end to their plans. On many occasions bridging loan deals have been an alternate option, even though it has to be stated not always a smart option.
It is very important to understand that bridging loan deals are only intended as a short-term loan facility and therefore has to be paid back in 6 to 12 months. Bridging finance can be the most cost effective choice for raising finance over a short time period, but they usually have a high month-to-month interest charge causing them to be uneconomical if used as a longer term loan option.
The other features of bridging loan funding are that they can be arranged quickly on account of the more adaptable underwriting requirements. It is this advantage that makes them favored as a method of finance when applications through other sources have failed! Together with being helpful when finances are needed fast, bridging lenders will use a large variety of property as security. This can include derelict property, land and buildings needing renovation. As a result of the flexibility in lending on property needing work or significant repairs, bridging loans are commonly used as a way to pay for building work.
About the other hand there are other financial sources than bridging finance that could be used for building projects. With many parallels development finance deals are likewise a good alternative for resourcing building, redevelopment and construction works. The principle benefits that development loans have over bridging is that they can be organized with lengthier terms, in many cases up to three years, and the funds can be released in stages when it is required. This has the primary advantage in that interest isn't actually being charged on money until it has been utilized as the project begins and expands.
The firms who provide development loans are specialists when it comes to building work so can prove to be helpful and can arrange finance facilities that will be truly useful to the project.
Concerning bridging loans, once the development has been completed the property or house will be sold and the proceeds used to repay the development finance. Alternatively the finished property can be refinanced to repay the development loan and offered to the renting sector.
