Once the lender has made a formal offer of loan the borrower is under no contractual obligation to draw down the loan and may withdraw from the transaction at any time up completion.
The lender may also withdraw the offer of funding at any time prior to completion if certain information comes to light which affects the lender’s underwriting decisions, points out David Kinane, partner at Paxton Private Finance.
“It is important to note most bridging loans are repayable on demand,” he reminds.
Issues such as early redemption, failure to repay, etc are generally very clearly set out at the outset.
If the worst does happen, and the client misses a payment or the exit fails, different lenders will deal with it in different ways.
“Some providers do their best to work with the borrower and give them the time to make the payment or find a different exit,” says Jonathan Samuels, CEO of Dragonfly Property Finance.
“Others will turn the screws quite quickly and start applying additional fees or increase the interest rate.”
It’s worth the adviser asking any lender upon taking out the loan what they will do if your client cannot redeem or misses a payment.
Mr Jupp adds: “Missing payments are never a good thing, however, bridging loans can be structured so that there are no repayments to be made until the set redemption date. Interest on the loan is rolled up and the full sum borrowed along with accrued interest is paid at redemption.”
He urges that in the event of missed payment when the loan interest has been structured to be repaid on a monthly basis, it is advisable to engage with the lender as soon as possible.
In the event of non payment or efforts to restructure the deal have failed, the property or asset can be sold to recover the debt.
The lender will try to obtain the best possible sale price with any residual balance after settlement being returned to the borrower.
