Bridging Finance is increasingly being used by both individuals and businesses as a short term solution that complements and supports traditional long term lending.
Lee Gilmore is a Business Development Consultant with Bridging Finance Solutions and has 21 years previous experience of Commercial and Corporate Banking. He discusses the growing trend in use of bridging finance by today’s professional sectors:
Lee explained: “Having an in-depth knowledge of how high street banks operate, their credit appetite, how they price for risk, their structure and deliverability provides me with the ideal platform from which to identify how BFS can complement traditional funders.
“The bridging finance sector has fundamentally changed over the last 20 years and it continues to evolve at pace. No longer is it exclusively offered by high street banks for the classic bridge between a house purchase and a delayed house sale or perceived as an expensive last resort solution.
“Whilst it continues to serve as a cash generative, short-term solution for asset rich individuals and businesses, it is also now the funding of choice for sophisticated borrowers and professional property developers. Ultimately, all borrowers and their advisors want to deal with a lender that can make a quick lending decision, presenting the facility professionally, with transparency and a timeline to drawdown.
“The bridging finance market has expanded with pace over the past ten years and has correlated with changes within high street banks. Enhanced banking regulation has meant deals are taking much longer to progress. Client due diligence is more exhaustive, for the right reasons, however the intense regulatory pressure on the banks to change means they cannot make the internal changes quick enough to satisfy their customers’ turnaround needs. The significant enhanced cost of banking regulation is also impacting the bank’s profitability.
“The credit crisis in 2007 started the process of the high street banks virtually withdrawing from the bridging sector as they quickly attempted to re-define their property lending exposure. This then created a void to fill. Banks also started to raise their professional standards and the cost of this is impacting customers. This is greatest at the smaller property development end of the market (e.g. sub £2m debt) whereby the increased professional costs to deliver an acceptable transaction to the bank’s is not proving worthwhile. This has therefore also created a specific void for the bridging sector to fill.
“Established bridging finance clients no longer view bridging as a higher interest rate but as an opportunity to make more profit by the ability to negotiate harder on purchases for a quick turnaround and also being able to complete refurbishments and developments quicker and also have more happening at the same time.”
“The bridging market is complementing the high street banks by offering a bespoke, personal and quick underwriting service. A professional panel is selected for their bridging experience and speed of delivery. Funding transactions are often utilised whilst high street bank credit sanction obtained, refurbishments and conversions are completed, tenancies arranged or companies complete financial accounts. The speed at which a bridge can be realized provides the client with the equivalence of a cash buyer.
“BFS is proactively working closely with the banks to complement their services and assist their customers when they cannot deliver what they need. Speed, flexibility, experience, professionalism and a personal approach are the key to BFS’s success to date and will be the continued differentiator as a growing influx of bridging finance providers enters the market.”
“The signs are there that bridging’s move into the mainstream will continue even as the economy shifts further out of recession. There will always be a place for fast short term funding whether in a rising or falling market. In recent years, more professional firms have entered the market and competition has driven market prices down and ensured transparency of terms.
“Professional advisors are recommending bridging to businesses going through takeovers or mergers, as it’s often necessary to arrange capital swiftly. Similarly, for management buy-ins (MBIs) or buy-outs (MBOs), funds can be raised based on the existing business’s balance sheet or directors assets whilst due diligence is carried out for longer-term funding.
“In a challenging market for many businesses, bridging has also provided a lifeline. Whether it’s to deal with cash-flow issues, purchase stock or pay a tax bill, the speed and flexibility in which bridging finance can be arranged can make the difference between business stagnation or growth.”
Typically, BFS will provide a full decision in principle within 24 hours and we can generally draw down funds within seven days with a willing client. Each loan is assessed on its individual merits and we have an appetite for smaller property development projects and refurbishments that the banks might not have. The firm is a long-established business and is authorised and regulated by the Financial Conduct Authority, ensuring total client transparency. BFS also continually review and introduce technology into the business for a smoother client experience (e.g. a client and introducer portal for online deal progression and automated text message updates for clients), however, a dedicated manager will meet or speak to the client when necessary.
Lee concluded: “The bridging market will continue to evolve as more providers come to market and more established players seek their niche and differentiate their services. There will be enhanced regulation of the sector and a continued client transparency drive. Technology will attempt to reduce the cost of supply and some bridging companies will grow and develop and be accepting that their models become more reflective of high street banks.
“At Bridging Finance Solutions we see the greatest untapped market potential in educating more of the professional sector in how bridging finance can be a cost-effective and timely solution to their clients at a point in time. The personal service, professionalism and speed to draw down will also define who the professional sector choose and which lenders to develop a partnering mentality with.”