Bridging finance explained
Bridging finance, in its simplest term, is basically a short term loan from a lender to a borrower secured against an asset (the security).
The lender would either be a finance company (or individual).
The borrower would be a company, developer or business person.
The security would usually be an asset, such as a physical property.
The risk is measured as a percentage of the property value. The usual term is the loan-to-value, LTV. The greater the loan the more the risk.
The risk can be broken into 3 simple tranches accordingly:
- debt – low risk, usually up to 50% LTV
- mezzanine – medium risk, usually 50% to 75%
- equity – high risk, usually 75% to 100%
Bridging in more detail
As one can now see, the bridge loan is basically the same as any other type of loan.
If a borrower can source a lender directly (which is becoming increasing easier to do with the advent of communications technology) then both parties will be able to reduce frictional costs such as brokers, regulatory fees (for unregulated loans) and administration fees. This will not always be the case as a good broker may be essential to progress the transaction.
However, there will still be some necessary professional fees, in the form of a surveyor (for valuation) and solicitors in order for both parties to have a secure and fair contract. These are generally more transparent and usually agreed upfront.
LEM can provide
LEM Solutions Limited can provide b2b bridging finance as part of its business. Borrowers should note that LEM is not regulated by the FCA so loans must be for business purpose only and therefore no owner occupier are permitted, neither the borrower nor any family members including a spouse, parent, brother, sister, child, grandparent or grandchild; or any person whose relationship has characteristics of the relationship between husband and wife;are permitted to dwell in the said security at any time whilst is it being used as security for the loan.
All loans are underwritten with a common sense approach. The overriding objective is to provide a fast, reliable and transparent service to professional borrowers.