When considering bridging as a short term funding solution, there are a few key aspects to consider. One factor which should be at the top of your client’s list is a strong exit strategy. An exit strategy is the way your client intends to pay their loan back. When approaching a bridging lender with a case, a strong exit can help to give the lender confidence in your client’s ability to pay back the loan facility within the agreed timeframe.
By its very nature, bridging lenders tend to have more accommodating lending criteria for short-term funding when compared to high-street lenders/banks. The purpose and exit of the loan should be clearly outlined to the lender so the loan is not outstanding for longer than it’s needed. This can otherwise result in higher interest rates once the loan goes over-term.
Having a poor/weak exit strategy can result in possibly needing to re-bridge. If your client finds themselves in the situation where they will go over term, they may consider re-bridging. If they decide to re-bridge with a new lender, they will need to consider additional costs such as paying additional set-up costs again, legal fees, administration costs etc.
Each exit strategy is unique to the client’s own circumstances and depends on a number of factors. However, there are a few reoccurring exit strategies we come across at Greenfield. The first and most common being sale. A sale may be from your client’s current home. For instance, your clients may find themselves stuck in a property chain that is at risk of falling apart. Their intentions may have been to fund the purchase of their next home with the proceeds from the sale of their current home. In this situation, Greenfield would be able to fund up to 100% of the purchase price of the new home if the client is able to provide additional security. The exit would be the sale of their current home. As the lender, we would look to see their current home is listed on the market and ensure the property used as additional security is strong.
A second common exit strategy is refinancing. Refinancing tends to be an exit where the client has spotted a property to purchase at auction and doesn’t have time to secure a typical longer-term mortgage. Typically this is either to a BTL mortgage or a residential mortgage with a high street lender. The client will need to provide an AIP evidencing they will be able to borrow the required amount to refinance when their current loan facility reaches the end of its term.
Finally, a slightly more quirky scenario we come across frequently relates to inheritance. This is where the client is going through the inheritance process and waiting for probate to conclude. For example, probate might be the selling of an asset. Whilst the probate goes on, the client may have agreed to buy a new residence for themselves. Due to the fact they will redeem the loan relatively quickly, a normal mortgage may not be suitable. When the probate process finishes, the bridging loan will be repaid. In this situation, we ask the lawyer handling the estate to confirm probate has been granted.
As one of few FCA regulated bridging lenders, Greenfield is able to support more widely on exit strategies that may relate to cases where the client (or a close family member) intends to live in the property being purchased. We also handle unregulated commercial/semi-commercial cases too.