Non-Status Bridging Loans

Non-status bridging loans enable investors to develop their portfolios without the restrictions of affordability assessments, and are a powerful form of lending

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Bridging loans are a hugely flexible way for property developers and investors to secure the finances they need, and often form an integral element of the development process. The demands of modern finance often require that developers move quickly to seize opportunities, and it’s vital that their finances can keep up; non-status bridging loans are used by developers and real estate investors who need access to fast, flexible funding that isn’t tied down by cash flow analysis and status assessments.

Non-status bridging loans can provide the missing link in securing a real estate opportunity that might otherwise be beyond reach, allowing portfolios to be developed quickly and securely in a way that drives assertive, adaptive development strategies. Non-status bridging loans can often be essential for the success of a project, but should never be considered without expert advice; this form of lending can enable developers to secure the finances they need, but if used improperly can prove financially straining. It’s therefore vital that anyone considering a non-status bridging loan as a tool for driving real estate investment consults a qualified financial advisor before proceeding.

What is a non-status bridging loan?

Bridging loans are fast-moving short-term financial products secured against an asset. They provide a way to secure a property quickly while a mortgage is put in place, and are typically used to kick-start development. The capital which a bridging loan provides allows a project to start on time and to keep on schedule, which is vital for the success of any development opportunity. Bridging loans, as with many other forms of lending, are subject to intense scrutiny from the lender - they will want to know exactly who they’re dealing with, and will usually want to see a strong financial history to ensure their money is in safe hands. In addition to this, the FCA (Financial Conduct Authority) requires that bridging providers carry out substantial affordability assessments on potential borrowers in order to establish whether the loan is appropriate for them or not.

However, the lender’s financial history and current income situation are not the be-all and end-all of whether they can afford to take out a bridging loan or not. Many lenders recognise that these requirements can stifle valid opportunities for expansion, and are willing to approve loans on projects with very promising potential. In these cases the lender will judge their application purely on the strength of the deal itself, rather than on the financial status of their client.

Why use a non-status bridging loan?

A non-status bridging loan can be exceptionally useful for borrowers who are unable to provide the financial status set by the FCA for bridging finance. While the FCA’s regulations are put in place to ensure that loans are approved with a reasonable expectation of their repayment, the emphasis on cash flow and income does not always reflect the reality of modern lending. Many asset-rich investors and developers do not have a substantial cash flow income, because it’s essential for these investors to leverage their assets as much as possible; they will often forego capital income in favour of portfolio development. This can create a situation where a developer has a large number of assets but is unable to meet the requirements set forth by the FCA for status-based lending.

In addition, many lenders will want to see evidence of a borrower’s financial history, which they may not be able to provide; this could simply be because they’re a relatively new developer and don’t have an established track record, but many lenders will be uncomfortable with clients who are new to the industry. Similarly, a borrower with an adverse credit history may struggle to obtain the finances they need to secure new business, and may therefore benefit from a non-status bridging loan.

What’s the difference between a non-status bridging loan and regular bridging?

Non-status bridging loans focus entirely on the application of the loan itself, and not on any extraneous circumstances. This means that the lender will look at the asset which they’re being asked to lend on, and the borrower’s plans for the loan, but they will not look at their income in order to assess whether or not to proceed with the loan. This can be crucial for developers who have little regular income from their portfolio but still wish to expand into new investment opportunities.

Typically, a non-status bridging loan will be offered with several variations from a bridging lender’s standard loan products. These variations will reflect the additional security which the lender will need to obtain from their client in order to proceed with a non-status loan. This often means that the maximum LTV available on a non-status loan is lower than that of a status-assessed loan, giving the lender greater assurance that their loan will be recouped in the event that the loan isn’t repaid. It’s also common for non-status loans to attract a higher interest rate than status-assessed loans. However, the power which non-status bridging loans offer to investors is often well worth the higher price of obtaining such a loan.

Who offers non-status bridging loans?

Non-status bridging loans are available from many bridging lenders, and many loan providers will offer both status and non-status bridging products. Non-status bridging loans require a high degree of experience on the part of the lender, however, since their assessment of the property’s value forms the entirety of their security; lenders who offer non-status bridging loans must be deeply experienced within the market in order to offer such a flexible product.

Securing a non-status bridging loan

Non-status bridging loans are secured against an asset in exactly the same way as a regular bridging loan; this enables the lender to repossess the asset if the borrower should fail to repay. It’s vital that anyone seeking a non-status bridging loan keeps this in mind when deciding whether or not to seek this form of finance, and carefully considers the implications of their loan.

National Association of Commercial Finance Brokers Financial Services Authority Association of Short Term Lenders Association of Bridging Professionals

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