8 Alternatives to Bridging Loans
Alternatives to bridging loans are worth looking into if you don’t only need a short-term property loan to fill a gap in funding.
There may be a range of options out there, depending on your specific circumstances and the reason you are seeking funding.
Bridging loans are widely considered fast and flexible short-term finance solutions. They can provide prompt access to funding, making them suitable for seizing time-sensitive opportunities, and in many cases, the loan terms can be tailored to meet your specific needs.
However, there are a variety of circumstances where bridging loans may not be the best option for you. At Clifton Private Finance, we make sure to explore all of the options that could be available for you, and our team of highly experienced brokers can use their market knowledge to get you the best deal.
In this guide, we look at 8 bridging loan alternatives that may be better suited to your circumstances, depending on your needs.
When Would You Need an Alternative to a Bridging Loan?
There are occasions where bridging loans can come with high-interest rates and fees. If you have access to more cost-effective financing options, such as traditional term loans or lines of credit, it may be more financially prudent to pursue those alternatives.
If you require financing for an extended period, bridging finance is not ideal because it's designed for short-term use. In such cases, a longer-term loan or a mortgage may be a better fit.
The need for an alternative to a bridging loan arises when you want to explore financing options that are better suited to your specific financial circumstances, risk tolerance, and repayment preferences. And we can help you understand what options are out there.
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What alternatives to bridging loans are there?
Generally speaking, the 8 most common bridging loan alternatives are:
- Second-charge mortgages
- Equity Release
- Personal Loan
- Savings or Family Support
- Development Finance
- Commercial Mortgages
- Refurbishment Loans
None of these loans can replace bridging loans for the right situaiton, but they offer alternatives where a bridging loan might not be quite right - such as where you need a longer repayment term, you don't have property for security, or you just need a small cash injection.
Let's break them down in more detail:
1. Second-Charge Mortgages
One viable alternative to bridging loans is a second-charge mortgage. This type of loan allows you to use the equity in your property as collateral for a secondary mortgage.
If you already have a mortgage, a second-charge mortgage can be taken out alongside it. This provides additional funds based on the value of your home.
Unlike bridging loans, second-charge mortgages typically offer longer repayment terms, which can be advantageous if you would prefer an extended period to pay off the debt.
There may also be a lot of flexibility on what you can use your second charge mortgage for – be it home refurbishments, extensions, second property investments, or even personal use like paying for a wedding.
The advantage of second charges over remortgaging is that you protect your current mortgage deal. If you’re already on a low fixed rate with your current mortgage, a second charge means you don’t have to remortgage entirely onto a new higher rate.
Remortgaging is another option worth considering. This involves switching your current mortgage to a new lender or renegotiating the terms with your existing lender.
By remortgaging, you can access a significant amount of funds, sometimes more than a bridging loan.
Of course, the process may take longer, often a month or two compared to the relatively quicker setup of bridging loans.
If speed is a factor, a bridge loan may be what you’re looking for, and bridging loans can also be refinanced onto a mortgage if you need a more long-term finance solution.
It’s crucial to factor in costs such as arrangement fees, valuations, legal fees, and any possible early repayment charges when calculating the total cost of a remortgage.
3. Equity Release
If you're a homeowner looking to make use of the equity tied up in your property without taking on additional debt, equity release could be the solution.
Equity release schemes allow you to access a portion of the value of your home without having to pay it back monthly.
Instead, the loan is repaid when your property is sold, typically when you move into long-term care or pass away.
Equity release can be a suitable option for those aiming to release funds for retirement or other financial needs.
Unlike with second charge mortgages or even retirement mortgages, the interest on an equity release mortgage compounds and will be due when you sell your property.
If you want to explore your options further, we strongly recommend speaking to a mortgage broker.
4. Personal Loan
In many cases, a personal loan can be unsecured, offering a collateral-free option as an alternative to a bridge loan.
They're typically only available for amounts below £25,000 but are often flexible and easily obtained.
You can get personal loans from banks and private lenders. They allow you to borrow funds and then repay the loan alongside the interest and any applicable fees over a set period. Remember, the longer the repayment period is, the more interest you'll pay.
Unsecured loans can be used for various needs like debt consolidation or home improvements, as lenders may be less stringent on what you use them for.
If the structure of a bridging loan isn’t suitable for you and you’re looking for a flexible financial product that can be obtained quickly, a personal loan could be an option to look into.
5. Savings or Family Support
One viable alternative to using a loan could involve tapping into the savings you have built over time.
Alternatively, you may contemplate seeking financial assistance from a trusted family member or a close friend.
If this option is available to you, it may be worth exploring, as using your savings or gifted funds means you won’t have to pay interest or other fees associated with borrowing from a lender.
6. Development Finance
If you’re looking at renovating or doing heavy refurb works to a property, development finance could also be an alternative to a bridging loan.
While bridge loans and development finance share similarities, they cater to different purposes.
Bridge loans are primarily designed for property purchases and typically require collateral in the form of an existing property.
In contrast, development finance is secured based on the projected value of the property being developed (the GDV – Gross Development Value).
This means you can borrow funds based on the anticipated value of the completed project.
However, it's essential to note that development finance can be relatively expensive because it is typically used to fund entire projects or new builds.
It also may be better suited to seasoned property investors and developers, due to the scale and complexity of these projects.
7. Commercial Mortgages
Commercial mortgages are long-term loans used to purchase or refinance commercial properties, such as office buildings, retail spaces and industrial facilities.
They can serve as an alternative to bridge loans for commercial property investments. Commercial mortgages offer a certain level of stability with longer repayment periods, resulting in predictable monthly payments and lower interest rates.
Commercial mortgages are secured by the property being financed, which can allow you to expand your property portfolio without involving your other assets.
These mortgages are versatile and suitable for various purposes, and each payment contributes to building equity in the property.
8. Refurbishment Loans
While technically a subcategory of bridging loans, refurbishment loans are a fitting choice for properties requiring renovation before they can be rented to tenants or put on the market for sale.
These loans are particularly useful when you intend to secure a mortgage on the property once the refurbishment is complete.
Business Finance Alternatives to Bridging Loans
Bridging finance is a funding solution popular for its speedy application and flexibility. But if you’re a business owner, there are options out there that may be more suitable for your circumstances.
Whether you're seeking funds for expansion, equipment or addressing cash flow challenges, these alternatives to bridge loans can offer diverse pathways to meet your business's financial needs.
Asset finance can be an excellent method to fund business equipment, including machinery, expensive vehicles, and luxury assets.
Typically starting at £10,000, this type of financing covers a wide range of items, whether new or used and even items acquired through auctions.
Asset finance offers a secure lending option where the loan is backed by the purchased asset itself. This eliminates the need for additional collateral and mitigates the additional risks often associated with bridge financing.
For businesses, it's an ideal way to finance necessary equipment when cash flow is a concern. Repayment periods are customised based on the economic life of the asset, offering flexibility with both shorter and longer-term loan options.
Invoice finance can be an effective means to free up cash tied up in a business's outstanding invoices. This financial solution can empower businesses to enhance their cash flow, facilitating investments in growth and operations.
Invoice finance addresses specific cash flow challenges within a business, making it a preferable alternative to bridge loans in such cases. Particularly beneficial for businesses with extended payment cycles, it enables the unlocking of funds from unpaid invoices.
However, it's important to note that invoice finance is typically only available to businesses with a certain annual turnover, making it suitable for a limited range of enterprises.
Small Business Loans
Small Business Loans are traditional loans from banks or financial institutions, typically aimed at established businesses with potential for growth. They come with various repayment options and interest rates, making them suitable for a variety of business models.
These loans can be attractive as they may offer more favourable terms, lower interest rates, or access to expertise compared to the often higher-cost and shorter-term bridge loans.
Merchant Cash Advances
Merchant cash advances are repaid through a percentage of a business's daily card sales instead of a fixed monthly payment. This means that on each business day, a predetermined percentage of the day's card sales is remitted to the MCA provider until the advance is fully repaid, plus fees.
They are popular because they provide businesses with rapid access to cash, in many cases within days. They don't require collateral and can help boost growth and cash flow during slow periods.
However, merchant cash advances can have higher interest rates than other types of loans. Daily payments can also put a strain on cash flow in the long term, especially if they are relied on too often.
But when used in the right circumstances and managed correctly, they can be a convenient financial product offering a simple repayment system and quick access to cash.
What to Look Out for with Alternatives to Bridge Loans
Navigating the full range of financial products on the market can be complicated. When looking for a loan, it's important to thoroughly research the terms being offered, the interest rates and any fees associated with the product.
Working with a specialist finance broker can make this process easier. At Clifton Private Finance, our experienced brokers have a full view of the market and can advise you on the best deal. A good broker can explain the details of each product, whether it would be suitable for your needs, and help you with your application.
Interest Rate and APR
Scrutinise the interest rate and annual percentage rate (APR), encompassing any associated fees. A lower APR can result in significant savings over the loan's duration.
Calculate the total amount to be repaid throughout the loan's lifetime, including both principal and interest. This will give you a clear picture of the financial commitment.
Penalties and Fees
How to Find Alternatives to Bridging Finance
Careful consideration of your financial goals, risk tolerance, and timeline for accessing funds will guide you toward the alternative that best aligns with your needs.
By conducting thorough research and using the help of an experienced finance broker, you can make informed decisions.
At Clifton Private Finance, we can help guide you through your options as we have for many other clients. We can determine which sort of finance you’ll need. And, importantly, we can get you a solution quickly through our expansive network of specialist, private and traditional lenders.
When making any significant financial decision, it's always best to seek the help of a bridging loan expert. This can ensure you're getting finance at an affordable and favourable rate.
Call us today on 0117 959 5094 to see how we can help, or book a consultation with us below.