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How Lenders Mitigate Bridging Finance Risks

How Lenders Mitigate Bridging Finance Risks 1

For some years the bridging finance sector has been considered as a risky market to enter for lenders but there are ways that they mitigate potential issues when offering this type of loan to borrowers.

We discuss 5 ways lenders use to mitigate the risk of a bridging loan:

  • Checking the Borrower’s Background 

Checking the background of the borrower is imperative when The first stage would be for the borrower to fill in an application form with enough detailed information to show both past experience and a clear insight into their current financial position.

Following up and checking the information is both accurate and transparent is almost certainly something a lender will do. Facilities such as Experian and Companies House are typically used to confirm any data provided, to ascertain whether the borrower qualifies for a bridging loan.

  • Valuing Your Property / Asset

As bridging finance is a type of short term secured loan, borrowers are required to provide the lender with some sort of security, such as property, in order to qualify for a bridging loan. Valuing the security offered is an important step and will almost certainly be required. Lenders’ will use the valuation amount to calculate the funds that can be loaned and to give them assurance that the bridging loan will be repaid, in full and within the time period agreed upon.

Most lenders will use a panel of locally selected professional valuers to value the borrowers assets. Local reputable valuers will have a better knowledge of the area and therefore will be likely to give more accurate and realistic figures.

Providing unrealistic and inaccurate values when making the original application will result in the lender losing confidence in the borrower and may in turn result in an application being turned down. It is imperative that the information provided is carefully considered before making the application as all information will be strictly vetted, so getting it right is crucial.

  • Location

An important aspect for lenders, when considering an application for bridging finance, and calculating the size of the funding available, is the location of the property or development site. The location will be a deciding factor on whether the lender feels that the property of development project will easily sell. The suitability of the property or site will be assessed in the early stages before any offer of funds is made. This will give the lender peace of mind that the loan will be honoured and repaid in the contracted period.

  • Local Area Activity

Lenders will analyse the local property market activity to analyse how property sales are doing in the area. Comparison searches will be done to ensure the valuers data is correct by using figures relating to recent sales in the general area. This helps the lender to ascertain the amount that can be borrowed.

  • Due Diligence

It is the responsibility of all lenders to do due diligence when approving a client for bridging finance. This is typically done in the last stages of a bridging loan application. The lenders will instruct their solicitors to perform all the necessary legal requirements and carry out additional checks on both the borrower and the property, in order to complete the bridging finance arrangement and release funds to the borrower. This is a vital step in order for the lender to make an informed decision as to whether they should approve the borrower for funds or not.

By following this advice, as a borrower, you can both save time and increase your chances of being accepted for a short term secured bridging loan. It is always advisable to employ the skills of a reputable broker who has proven experience in the bridging finance sector. A broker will most likely have access to lenders that are not available to the general public and will thereby be able to find the best deals available on the market.


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