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Guide to short-term finance

Published by FTAdviser | Jun 28, 2012

Brokers considering their client’s options in the short-term finance sector must ensure they do their homework given that there are a growing range of options.

Short-term finance provides liquidity quickly for applicants to meet immediate business and or personal needs. It is never meant to be a substitute for long term funding as it carries a higher price than conventional funding.

The trade-off is between speed and convenience on the one side against greater costs of funding.

FTAdviser’s Guide to short term finance tackles the different types of loans available, the pros and cons for clients and how much an adviser can expect to be paid for arranging such a deal.

Answers supplied by Alan Margolis, head of bridging at United Trust Bank, Paul Aitken, chief executive of Borro, and Steven Nicholas, chief executive of Tiuta.

  1. 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.

  2. Q: What are the different types of short-term loan?

    The best known short-term loans are known as bridging loans.

  3. Q: What are the pros and cons of different short term loans?

    Most short term loans are in essence similar. Where these loans usually vary is with regard to interest rates, fees and charges.

  4. Q: Who regulates short-term loans?

    The Office of Fair Trading, though first-charge bridging loans will be regulated by the Financial Services Authority.

  5. Q: How are short-term asset loans secured?

    First and foremost, the client will need to own valuable assets.

  6. Q: What happens if the borrower misses a payment?

    It could ultimately result in repossession however this is subject to the usual accepted lending practice and protocols.

  7. Q: Do missed payments affect credit rating?

    In certain circumstances the borrower’s credit rating can be hit by failure to pay off a short-term loan.

  8. Q: Is the bridging loan borrower protected by law?

    Often borrowers are protected by the Consumer Credit Act.

  9. Q: Once a bridging loan is agreed can it be cancelled?

    Following acceptance of an offer, but prior to draw down of funds, borrowers are under no obligation to take out their loan.

  10. Q: What will I be paid for arranging short term finance?

    Introducers are usually paid commission or an introducer’s fee by the lender, which is disclosed to the borrower.

  11. Q: Can the asset be sold?

    As with all secured loans, if ultimately the borrower cannot repay the loan then the lender would be entitled to repossess and sell the security...

  12. Q: What if the asset is sold for more than the loan amount?

    The excess will be paid back to the client after costs are taken out.

Finished reading this article? Bank 1hr Structured CPD below.

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Q1.  What term is often used to refer to short-term finance in the context of mortgage lending?

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Q2.  Into what category do most second-charge loans fall?

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Q3.  What is personal asset lending?

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Q4.  Who regulates short-term finance?

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Q5.  What loan-to-values are offered by Borro for loans secured against assets?

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Q6.  How long does a borrower have to pull out of a personal asset loan without having to give reason?

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