Short-term loans and bridging finance
![Liz Syms](https://connectbrokers.co.uk/wp-content/uploads/2020/05/liz-syms.jpg)
Exploring the variances: Short-term loans and bridging finance unveiled by Liz Syms:
“In a recent conference I participated in, a spirited discourse unfolded around the distinctions between short-term loans and bridging finance provided by a particular lender.” Liz Syms, the CEO of Connect for Intermediaries, offered illuminating insights into unravelling the nuanced disparities between these financial instruments and navigating the path to selecting the most suitable option for your clientele.
Amid the discussions, a prevalent question lingered: Are bridging loans and short-term loans essentially synonymous? Contrary to common assumption, the discourse presented a lucid and well-defined explanation, shedding light on the distinctive features that set these financial tools apart.
The need for speed
When urgency is paramount, bridging finance is often the go-to solution. Its application becomes evident in scenarios such as facilitating swift property acquisitions at auctions, where a stringent 21-day completion timeframe looms overhead.
Yet, in the contemporary lending landscape, the capability of “bridging” lenders to seamlessly navigate from initiation to conclusion within this tight timeframe is subject to scrutiny. While unquestionably, some excel in this rapid-paced environment, a novel category of lenders has surfaced, opting to identify themselves as “short-term loan” providers.
This shift in nomenclature raises intriguing questions about the nuances between short-term loans and traditional bridging finance. Liz Syms, the astute CEO of Connect for Intermediaries, recently shed light on this conundrum at a conference, engaging in a lively discussion on whether the lender at hand truly extends bridging loans or aligns more with the domain of short-term financing.
Unravelling the intricate distinctions between these financial mechanisms, Syms elucidates the parameters that set them apart, providing valuable insights for individuals seeking the optimal solution tailored to their specific needs. As the financial landscape continually evolves, understanding the subtleties between short-term loans and bridging finance becomes imperative for both industry professionals and clients navigating the swift currents of the lending market.
Underwriter pressure
The landscape of bridge loan pricing has recently undergone noteworthy changes, witnessing a notable drop from the historical norm of approximately 1.5% per month a few years ago to remarkably competitive rates as low as 0.59% per month. Despite this apparent advantage for borrowers, the ongoing price competition and a surge in regulatory measures have shadowed some lenders’ willingness to take on risk.
This intensified competition among lenders striving to offer the most attractive rates has inadvertently led to a ripple effect, compelling certain financial institutions to reassess their risk tolerance. Consequently, this has translated into an upswing in underwriting requirements, creating a more intricate and meticulous evaluation process.
Consequently, the once swift loan approval process may now slow down, impacting the overall efficiency of the lending system. Industry stakeholders and borrowers alike must navigate these underwriting pressures strategically to achieve successful outcomes.
The price is right
Exploring the nuanced disparities between short-term loans and bridging finance became the focal point of a recent conference I attended. Amid a lively discourse, questions arose regarding a specific lender and whether they specialised in bridging loans or short-term loans.
Common misconceptions made many ponder, ‘Aren’t they essentially the same?’ However, the ensuing discussion brought forth a lucid clarification, unveiling a distinct demarcation between the two financial instruments.
In contemplating the landscape of these financial services, one must consider more than just the swiftness of the transaction. The emerging players in the realm of ‘short-term loans’ are not merely competing on speed; they are reshaping the paradigm by focusing on an alternative value proposition.
Price emerges as a pivotal factor in this recalibration. These innovative lenders are redefining their market, emphasising the urgency of transactions and providing short-term loans characterised by flexible criteria tailored to address specific needs. An illustrative scenario involves a client seeking to acquire a semi-commercial property in a prime high street location, intending to convert the retail space into residential units through permitted development rights.
Rather than opting for the more expensive route of bridging finance, this client can secure very cost-effective funds from a short-term loan lender. The collateral for this financial arrangement is the client’s existing unencumbered property. This strategic move offers a financially prudent alternative and aligns with the client’s unique project requirements.
Upon completion of the development, the units can be refinanced through standard buy-to-let mortgages, facilitating the repayment of the short-term loan. This strategic financial manoeuvre showcases the adaptability and innovative solutions that short-term loan providers offer, surpassing the conventional notion of financial services solely defined by speed.
Know your client
Brokers face the task of comprehending their client’s precise needs. Are clients seeking the most budget-friendly financing, regardless of the time it takes to arrange, or is their primary concern the urgency of the transaction? This crucial question serves as a compass for brokers, aiding them in choosing the most suitable lender for their clients.
Recently, during a seminar I participated in, there was a lively discussion about whether the financial institution in question provided swift short-term loans or traditional bridging finance. This naturally led to the pondering of a common question: “Aren’t they essentially the same?” Surprisingly, the discourse yielded a distinct and explicit definition.
Brokers must delve deeper into their clients’ financial requirements. Does the client prioritise cost-effectiveness, even if it means a lengthier arrangement period, or is the speed of the essence? Unravelling the answers to these inquiries is pivotal in guiding brokers towards the optimal lender choice for their clients.
We’ve come to the end of our debate: “Short-term loans and bridging finance.”