A typical example of a commercial bridging loan will be where an SMB will have a strong order book for its product range, but due to internal or external issues, cash flow is tight. The owner manager may wish raise cash very quickly to be able to maintain production to meet the demand for his products. Albion can take a position in the company, secured against equity offered by the owner / manager, so as to be able to provide the cash flow to enable the company to complete the production process.
In a property development context, an example would be a commercial developer who has one property which he is in process of selling valued at GBP200k with a GBP100k mortgage, and therefore GBP100k equity. In a situation where he wishes to buy a further property to develop - value of GBP400k and intended mortgage of GBP250k with GBP50k of new money.
A typical bridging loans request might be for the provider to lend the full purchase price (less new cash) of the new house, which will then be repaid from the new mortgage and the equity released from the sale of the old property. Therefore, as Albion we are asked to provide GBP350k which will be repaid GBP100k from the equity from the old property, and GBP250k from new mortgage raised.
A typical industry guideline is to provide a maximum of 70% of Loan to Market Value Ratio (LTMV). In this case – on the first property, the LTMV would enable lending of 140k less the existing loan of 100k, so 40k could be provided as a second charge on the first property.
In relation to the second property, 280k could be provided as a first charge (400k x 70%). In total, as a bridging loan provider, we would lend up to 320k for the purchase of the second home.
The typical bridging finance rate is 1.5% per month of the funds outstanding.
For more information on mortgages, the Council of Mortgage Lenders is an excellent resource with lots of information on the Mortgage market.
Clearly there are many providers available who can provide traditional mortgage finance such as Nationwide, Royal Bank of Scotland or Abbey National. However often the issue with many straightforward high street banks such as these is that they do not specialise in bridging loans - some building societies such as Birmingham and Midshires set out to focus on sub prime and short term bridging loans but we have not heard of many positive experiences of requests being turned round in rapid response times. There are a number of specialist bridging loans providers such as the Hampshire Trust which specialises in Bridging Loans or a whole range of loans guides such as Bridging Loans guides although in our research we have not much to help us with our bridging loan requirements.