Types of Bridging Loans

In order to obtain the very best bridging loan for your own personal requirements, it’s important to first understand the various types of bridging loans available. Residential loans, commercial loans, second charge loans and so on – all having their own unique benefits and applications. But one of the most important concepts to grasp prior to penning an application is that of the differences between ‘open’ and ‘closed’ bridging loans.

Given that one option of the two typically tends to be more accessible than the other, it is worth considering their attributes and mechanics ahead of time.

Closed Bridging Loan

First up, a bridging loan is considered to be a ‘closed’ bridging loan when the applicant has a fully defined and demonstrable exit strategy, prior to the loan being providing in the first place. Roughly translated, the applicant knows precisely how and when they will be able to repay the lender the total balance of the loan, along with any additional fees, interest charges and so on. They can provide the lender with a concrete date upon which the loan will be repaid, along with some kind of evidence to validate their ability to repay the loan as required by the assigned date.

Most of the time, lenders will only authorise bridging loans upon establishing a concrete exit plan with the borrower. As such, the vast majority of bridging loans are ‘closed’ bridging loans in nature.

Open Bridging Loan

On the flipside of the coin, lenders may sometimes be willing to offer ‘open’ bridging loans, which are somewhat more flexible and accommodating. The difference in this instance being that the applicant may not currently have a fully established exit strategy, or be able to provide the lender with a concrete date or roadmap for repayment of the loan. This is typically the case when a bridging loan is needed as quickly as possible at short notice and for unforeseen reasons, for which the borrower has had insufficient time to plan ahead. Purchasing a property at auction or meeting unexpected business expenses being two examples of possible last-minute bridging loan applications.

In terms of qualification for an open bridging loan, it is usually a case of being able to put up the required collateral to secure the loan. In which case, the balance of the loan is fully covered come what may. However, it may also be necessary for the borrower to demonstrate their track record and/or current financial position to the lender. Of course, it can also be helpful if the borrower has an existing working relationship with the lender, which can increase the likelihood of being accepted for an open bridge.

Alternative Bridging Options

Where bridging loans don’t represent an ideal or viable option, there are alternatives available. From overdrafts to short-term asset finance to conventional mortgages, there are always plenty of opportunities to explore. It all comes down to how much you need, what the funds are to be used for, when you intend to pay it back and how/if you can secure the loan with existing property or assets.

For more information on any aspect of conventional or alternative financial products, get in touch with the Donkey Finance customer support team today.