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The many variations and similarities of a bridging loan and development loans

Since the market meltdown many lenders have kept tight their finance underwriting which has made it harder for individuals to obtain loans. This has in particular affected people attempting to obtain mortgages as a favorable credit history is again invaluable and larger deposits are required.

The tighter lending demands which are influencing most lenders have lead to people failing to obtain the finance that they require. Some individuals have looked at other options for raising finance instead of putting an end to their plans. On many occasions bridging loan deals have been another option, even though it has to be stated not always a smart alternative.

It is very important that you be aware that bridging loan deals are only meant as a short term loan facility so needs to be paid back within 6 to 12 months. A bridging loan are frequently the most affordable choice for raising finance over a short period of time, but they typically have a high month-to-month interest charge leading them to uneconomical if used as a longer term loan facility.

The other merits of bridging loan funding are that they can be arranged quickly owing to the more versatile underwriting criteria. It is this benefit that makes them popular as a method of finance when requests through other channels have failed! In addition to being valuable when money is needed fast, bridging lenders will utilize a large range of property as security. This includes derelict property, land and buildings needing restoration. Due to the flexibility in lending on property needing work or significant repairs, bridging loans are often used as an effective way to pay for building work.

Having said that there are other financial options than bridging finance that can be taken advantage of for building projects. With many parallels development loans are likewise a good alternative for funding building, restoration and construction projects. The particular benefits that development finance deals have over bridging is they can be set in place with much longer terms, in many cases up to 3 years, and the funds can be released in stages as it is required. This has got the principle advantage in that interest isn't actually being incurred on money until it is used as the project starts and develops.

Lenders who offer development loans are experts concerning construction work so can prove to be very helpful and can structure finance facilities that will be genuinely useful to the venture.

As for bridging loans, once the development has been completed the house or property will be sold and the proceeds used to repay the development funding. On the other hand the completed property can be refinanced to pay back the development loan and offered to the rental marketplace.

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