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Regulated v Unregulated bridging loans – what’s the difference?
Understanding the different types of bridging loans
Bridging loans are finance facilities that help consumers and businesses to complete property transactions when a financial ‘gap’ needs to be bridged. Examples include a consumer purchasing a new home to live in and a business investing in commercial property.
It’s important to note the difference between regulated and unregulated bridging loans, however, as this impacts a deal from the outset. Both are flexible forms of short-term borrowing, so how do regulated and unregulated bridging loans differ?
What is a regulated bridging loan?
Regulated bridging loans are overseen by the Financial Conduct Authority (FCA), which exists to provide protection to consumers on financial products. The FCA sets the terms by which lenders can offer their products to the general public and the lending criteria that must be met before loans are sanctioned.
These criteria include credit checks and income verification and affordability checks so that consumers don’t overburden themselves financially and default on borrowing. A regulated bridging loan must be secured on the residential property to be lived in.
What is an unregulated bridging loan?
Unregulated bridging loans aren’t overseen by the FCA and are used by commercial investors and businesses. It’s assumed that professional property investors and businesses don’t need the protection offered by FCA regulation as they better understand the risks associated with bridging loans.
A commercial bridging loan isn’t secured on the borrower’s residence, therefore, and as the lending criteria are less stringent than those under FCA regulation, it offers greater flexibility to businesses and commercial property investors wishing to move quickly in a competitive environment.
Businesses and unregulated bridging loans
Commercial bridging finance is different to a standard commercial mortgage and is typically required quickly – perhaps to enable a property purchase to go ahead before a sale has been completed or to provide additional short-term funding for a buy-to-let investor expanding their portfolio.
The value of the asset is a primary concern for lenders rather than the business’s ability to repay, although the borrower does have to provide a plan for how they’ll exit the loan at the end of the term.
What are the advantages of unregulated bridging loans for businesses?
Flexibility
Several types of commercial bridging loans exist, including open and closed bridging loans whereby the borrower can set a date for repayment or keep the term open-ended as long as it’s repaid within 12 months.
Fixed or variable interest
Fixed or variable interest rate bridging loans enable businesses to opt for fixed monthly repayments that provide reliability when budgeting. Alternatively, variable interest rate loans may be cheaper overall if cost is an issue.
Speed
Unregulated bridging loans are typically fast to secure, allowing businesses to move forward quickly in a competitive commercial market.
How to apply for a business bridging loan
It’s crucial to obtain expert guidance when considering a bridging loan and to ensure you have access to the whole of the market so you can better tailor the borrowing to your specific requirements.
UK Business Finance are commercial finance brokers with an established history of helping commercial property investors. Please get in touch with one of the team to find out more about how we can help.
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Matt Cluer
Finance Expert
Matthew has over 15 years’ experience of working alongside businesses across the UK supporting directors, shareholders, and key stakeholders. At UKBF Matthew works tirelessly to secure the funding companies need when they need it. Adept at raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds as well as Government schemes, Matthew is perfectly placed to help your business access the funding required whether for general working capital, or to embark upon an ambitious growth and expansion project.
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Regulated v Unregulated bridging loans – what’s the difference?
Bridging loans are finance facilities that help consumers and businesses to complete property transactions when a financial ‘gap’ needs to be bridged. Examples include a consumer purchasing a new home to live in and a business investing in commercial property.
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A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
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