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From Adviser Guide: Short-term finance

Q: What is short term finance?

Short term finance, often referred to as bridging finance, usually refers to loans mostly offered on terms of up to 12 months.

By Emma Ann Hughes | Published Jun 28, 2012 | comments

Short term finance, often referred to as bridging finance, usually refers to loans mostly offered on terms of up to 12 months.

These loans have certain features in common:

1) loans are secured on property – usually but not exclusively on residential property;

2) the lender’s focus is on the borrowers’ ability to exit or repay the loan; and

3) interest is usually included in the facility so the borrower does not make interest payments during the term.

There are many uses for these short term facilities including the classic bridge between purchase and sale, enabling borrowers to downsize, meet tight deadlines for auction purchases or where other finance has failed to materialise in time.

Loans can also be used for capital raising or the payment of unexpected HM Revenue & Customs demands.

Alan Margolis, head of bridging at United Trust Bank, said each borrower’s situation is invariably unique and some specialist lenders underwrite the cases on a bespoke basis with tailored terms and conditions.

He said: “These loans tend to help borrowers who need flexibility and a lender that does not follow a tick box approach to lending.

“Given the short term nature of the facilities, responsible lenders focus very much on the exit and the ability of the borrower to repay their loan.

“However, there is flexibility in how the borrowers are able to repay. What matters is that the exit route is viable and realistic.”

In addition to the flexibility of use and nature of exit, Mr Margolis said most bridging loan facilities can be repaid at any time, usually without penalty.

Paul Aitken, chief executive of Borro, said: “In all its forms, the growth and popularity of short-term finance is based on making funds available very quickly, therefore giving clients the liquidity they require to meet immediate outcomes.”

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