Short Term Sources Of Finance
Short Term Property Finance
What Does Short Term Finance Do?
Many people who require short term sources of finance own a property or a business and sometimes more than one property. This can help with cross-collateralization loans. Sometimes the property is unencumbered; at other times there is a medium loan to value first charge mortgage outstanding. If this is the case a second charge may be appropriate. If you have a property with no outstanding debt, we can use a first charge lender.
Short term finance is ideal for securing other assets. Your business may need short term finance to shore it up, but you may lack sufficient equity in your business. You may need to take advantage of a limited-time opportunity but have no cash on hand. Whether you want to buy a property or take advantage of a business opportunity, short term finance is useful.
If you have a property that a lender can raise funding against, short term finance is perfect for you. Usually, you won’t need to disclose your income and lenders can offer a maximum term of up to 24 months. You will, however, have to have an exit strategy in place for paying off the loan.
Short Term Property Finance
Short term property finance is where a borrower requires funding to start a property project, finish a property project or use funding raised against a property for business purposes. These transactions can be complex. For example, if you own a property in Mayfair wrapped up in a Switzerland trust and require funding for business purposes. This is specialised lending and we have the capabilities to secure funding.
Bridging and short term finance can become confusing and that is why we intend to simplify these distinctions. Contact a member of our team to discuss your requirements today.
Short Term Sources Of Finance For Property Development & Individuals
Often, those with an interest in property development or a business that needs a hole to be filled will find themselves needing funds in a hurry. If a promising property arises, it’s helpful to have access to rapid short term funding to take advantage of it.
There are several short term sources of finance for property development projects. Here, we’ll look more closely at the different options open to investors and property developers so you can be well-informed.
Cost-Effective Short Term Finance Options
The above options may suit your needs as a property developer, but in many cases they won’t suffice. Using your own personal funding sources are often a poor idea for business purposes. Finding alternative cost-effective short term finance options is therefore essential.
Fortunately, there are solutions that can suit your needs. Bridging loans and development finance are speedy and convenient solutions for those involved in property development projects. Lenders can approve loans and release the money in as little as three days. That means getting a project off the ground speedily is a breeze.
It also allows developers to take advantage of immediate opportunities without fear of missing out. Below, we take a closer look at these short term solutions and what they involve.
Often, companies will raise an invoice but will not receive payment for another 30-90 days. During that timeframe, the company may need additional cashflow. In such cases, the unpaid invoice can be used as security for the lender. The borrower can then gain speedy access to a percentage of the value of that invoice. Often, the funding is available within as little as 24 hours.
How Much Money Can Be Obtained Through Invoice Financing?
Providers will lend varying amounts depending on their own individual risk criteria.
When Can I Use Invoice Financing?
Invoice financing is a funding method that allows borrowers to use a balance sheet asset that is frequently untapped to obtain funding. This money can either be used for investment purposes or to improve cashflow.
While Madison Carter Finance specialises in the provision of Bridging Loans & development finance, in some cases Invoice Financing may be a more suitable option for your needs.
Bridging Loan
Bridging loans give buyers a stop-gap financing option to fund purchases. This interest-only, short term lending product is suitable for use for many different types of property development project. Bridging loans provide useful cash injections to cover unexpected costly problems outside the budget that arise. They are also ideal for paying auction deposits.
Bridging loans have a cut-off point for repaying the loan. However there isn’t a penalty if you repay the loan early. A Bridging loan is flexible and can meet a borrower’s precise needs.
Bridging loans can and are used for property development and are some times search for as property bridging loans. This applies to residential and commercial properties. For commercial is used with us for PD schemes.
In fact, bridging loans have a broad use and it’s worth, getting in touch, for information.
Second Charge Bridging Loans
Borrowers who have a mortgage already in place have a couple of options.
Firstly, they may seek to extend the amount they can borrow under the existing loan by remortgaging. That can sometimes be impractical, though. Sometimes, prospective borrowers’ are now in different circumstances from those when they made their first application. That could lead to failure of the affordability test.
Alternatively, rearranging a current loan could result in a higher interest rate across the whole loan period. It could also result in a high early repayment penalty.
The second option is to consider taking out a second charge bridging loan. Second charge finance is an excellent alternative to remortgaging. It involves taking out another loan from another lender to sit on top of the existing mortgage. This type of short term finance is particularly good for buy-to-let landlords. Second charge loans release some equity from current rental investment properties to fund the renovation or purchase of another property.
Development Finance
Often, high street lenders fail to understand property professionals’ needs. That makes obtaining essential funds from traditional lenders difficult and time-consuming. Development finance often represents a more convenient and flexible alternative.
It’s suitable for new build projects. Thanks to the personalised and tailored approach of development finance, borrowers find it easier to meet their requirements.
We advise on Developer Exit Finance for new build property developers that have hit or about to hit practical completion.
Mezzanine Finance
In traditional mortgage lending, there are first and second charge loans. When it comes to development finance, Mezzanine Finance is the term uses for a second charge loan. It sits behind a loan already provided by an existing lender. Typically, it will have a loan to GDV of up to 70%.
Is There A Difference Between GDV And LTV?
The terms GDV and LTV are both used in the world of development finance. However, they are used in different contexts.
- LTV is the term used when a property is already built and thus has a residual value.
- GDV is the term used when the property has not yet been built. For example, when a loan is arranged for a development not built on a piece of land.
What Are The Benefits Of Mezzanine Finance?
Mezzanine Finance can offer the benefit of making an overall debt cheaper. As an example, a senior lender such as Lloyds Bank may offer a property developer a loan. It may have an excellent rate of interest, but a low leverage, for example, only 55% of the GDV. If the project requires a large debt structure, that is where mezzanine finance comes into play. The developer can take out both loans and blend the rates to cover the cost of the project at a more affordable cost.
Full product details can be found here.
What Does Short Term Finance Do?
What Does Short Term Finance Do?
Many people who require short term sources of finance own a property and sometimes more than one. This can help with cross-collateralization loans. Sometimes the property is unencumbered; at other times there is a medium loan to value first charge mortgage outstanding. If this is the case a second charge may be appropriate. If you have a property with no outstanding debt, we can use a first charge lender.
Short term finance is ideal for securing other assets. Your business may need short term finance to shore it up, but you may lack sufficient equity in your business. You may need to take advantage of a limited-time opportunity but have no cash on hand. Whether you want to buy a property or take advantage of a business opportunity, short term finance is useful.
If you have a property that a lender can raise funding against, short term finance is perfect for you. Usually, you won’t need to disclose your income and lenders can offer a maximum term of up to 24 months. You will, however, have to have an exit strategy in place for paying off the loan.
Do I Need Short Term Finance For My Property Development Project?
Do I Need Short Term Finance For My Property Development Project?
Short term finance is useful for many scenarios. Some of the most common include:
- Bridging loans for property development projects are a great way of sourcing short term finance for acquiring a property and raising funds to start works.
- Bridging. Often, buying one property depends on releasing capital from a different property. If the purchase has to proceed before its linked sale is complete, temporary finance bridges the gap.
- Funding renovation or construction work. High street lenders usually require properties to meet a specific standard before agreeing to long-term finance. If a property doesn’t meet those conditions, short term finance is an ideal solution. It can fund the necessary work so those conditions are met.
- Unforeseen liabilities and costs. Sometimes, issues arise with a property development project that means the budget is no longer enough to complete the project. Short term finance can give the extra cash injection needed.
Using Personal Funds
One option for short term financing is to use personal funds. Property developers who have personal savings can use them to meet their business’s immediate needs. If funds are accessible, this can appear to be an obvious and simple way to resolve the issue. It also avoids any need to use external funding sources.
For property development investors who have a limited company, however, the process isn’t simple. They need to treat the transfer appropriately for the purpose of taxation. That means formalising the transaction. Borrowing money from a tax-efficient investment vehicle like an ISA or pension is often problematic. It often means losing the tax benefits built up over time.
If you are a high net worth individual with the desire to develop properties, short term finance is also a great way to cover initial costs such as planning permission or contractors, or even labourers. It gives you the flexibility to take advantage of projects which may also be time-sensitive, such as auctioned properties and development projects requiring a fast turnaround time.
Taking Out A Business Loan
If a property development professional requires extra finance, they may turn to their bank for a business loan. This often seems like a convenient and simple option. Nevertheless, many professionals find their bank lets them down. Traditional lenders usually process loan applications very slowly.
Prospective borrowers may then miss out on opportunities, especially if time is of the essence. Banks have rigorous due diligence and eligibility checks to carry out. Even when they agree to a loan, the process is usually very drawn out. That makes using a traditional lender inconvenient if you require speedy short term finance.
Using An Overdraft Or Credit Card
If developers only require a small sum of money in the short term, they may use their overdraft or credit card. To use this option, though, borrowers must have confidence in their ability to repay quickly.
Failing to repay this debt rapidly can result in a lot of interest. That makes this type of short term finance more costly than alternative options.
The Financial Conduct Authority (FCA) may regulate your loan. If your loan is regulated we can deal with your application. It must be submitted through an FCA regulated intermediary.