The Security of Bridging Loans

Bridging loans are an important source of commercial finance for businesses looking to ‘bridge’ gaps in their cash flow and aid the purchase of significant, infrequent expenses such as new business premises.

In the majority of cases, however, bridging loans are secured, reducing the associated risk for lenders while providing flexibility for borrowers.

A number of assets can be used as security for a bridging loan, such as existing property, land or other assets. Discover our guide to bridging finance security below.

What is a bridging loan?

A bridging loan can be generally described as a short-term loan that can be used to bridge the gap between financial transactions. These bridging loans can be both secured and unsecured and therefore have a number of possible use cases, including:

• Protecting cash flow while waiting for bank payments
• Emergency property renovations
• Property purchases
• Unplanned business opportunities.

Short-term in this instance typically refers to a 6-12 month loan, which generally holds higher rates of interest in line with the shorter-term loan length. Our extended guide on bridging finance rates provides more in-depth knowledge of typical interest rates for these kinds of loans.

One of the largest advantages offered by a bridging loan, however, is the flexibility provided by their fast approval times, and easier-to-meet lending criteria.

The difference between a secured and unsecured loan

The difference between a secured and unsecured loan hinges on collateral.

Under a secured bridging finance loan, the creditor will specify one of the debtor’s assets to use as collateral. This means that, in the event that the debtor cannot meet the agreed-upon repayments for the bridging loan, this asset will become the property of the creditor.

In an unsecured bridging finance loan, there is no collateral involved. However, these carry higher interest rates because the creditor is assuming a higher level of risk.

Unsecured loans will typically have higher interest rates, and may have stricter lending criteria – creditors will wish to see more of a guarantee that a business is capable of meeting a bridging loan repayment plan if there is no collateral involved.

Inversely, if the majority of the business capital used to purchase the property or asset comes from an external loan, expect a high-value asset to be used as collateral.

Understanding bridging loan fees has never been easier, thanks to Anglo’s bridging loan fee calculator. To find out more, give it a go!

Is a bridging loan a secured loan?

Bridging loans can be regulated or unregulated in accordance with the property or asset used as collateral in the purchase of the new property.

For example, bridging loans that are secured against a property that is the borrower’s primary residence (or will become their primary residence in the future) are regulated by the FCA. This helps ensure that borrowers remain protected under specific consumer protection rules. These include fair treatment standards and comprehensive affordability checks.

However, if a bridging loan is secured against a property used for commercial, business or investment purposes – simply, any property that does not involve the borrower’s primary residence or personal use – FCA regulation does not apply.

These types of unregulated loans are commonly used by property developers, investors, or businesses looking for quick access to funds.

Get in touch

Still unsure about how bridging loans are secured? If you’d like to find out more about our bridging loans and the assets that you’re eligible to use as collateral, our team are always on hand to help.

Head over to our contact us page to find our details, or send us an email at enquiries@angloscottishfinance.co.uk.

If you prefer to give us a call, you can reach our office at 0191 410 4776.