The Improved Perception of Bridging Finance

David Lutton, Chief Operations Officer at Mathon.

They say “nothing endures but change” and that has certainly been the case in the bridging market. No longer is bridging simply a ‘distress product’ used as a last resort when all other financial avenues are exhausted; nor is it a market ruled by the formulaic lending criteria of the mainstream lenders. Bridging, or short term finance as it is now often referred, has become a dynamic sector and an established feature of the property funding market.

There has been a significant increase in awareness by intermediaries resulting in an improved perception of the sector. Some previous misconceptions of Bridging Finance being full of ‘cowboy’ providers or ‘loan sharks’ have been refined with individuals who realise that the majority of these providers are professional, experienced lenders who provide flexible loan solutions in a responsible manner for many different situations. The media have also allocated a greater amount of coverage on bridging finance with a more optimistic tone and this seems to be growing.

Bridging companies have also contributed to the increase of general awareness within the market, educating the intermediaries of products. In addition, established brokers within the bridging sector are playing their part, by explaining how bridging finance can help their customers as well as the financial benefits available to them.

Further myths of the commercial bridging loan sector include the idea that it is difficult to negotiate with a lender and the terms are hard to accept. In reality, the borrower more than likely has little or no cash equity and is therefore unable to raise a reasonable amount. They may have a troubled credit history whilst trying to arrange such a loan for months. For these reasons among others would a loan need to be more stringent.

Another past myth is that these types of loans are too expensive to be worthwhile for any business. This is not always the case as the pricing quoted for such a loan is typically appropriate for the given circumstances and is in line with the risk of underwriting. In addition, the borrowers see such a transaction as the cost of getting the deal done and as such, the cost of the loan is typically a small fraction of the final profit the borrower will reap from the project.

Lenders in the bridging finance sector used to be deemed disreputable and shrewd. However, as a result of more transparency within the market, it has come to light that whilst lenders are typically tough and straight-to-the-point, they are knowledgeable and understand that a fast decision is of the utmost importance.

A further reason why previously negative impressions of the market are being dispelled is the increasing affiliation of certain bodies such as the CML, The National Association of Commercial Finance Brokers and the Financial Services Authority which is helping regulation within the sector.
With more and more intermediaries becoming aware of the benefits for themselves and their customers, the uses for bridging finance becomes more diverse and with the housing market still buoyant, these factors will all add to the future growth of the sector. The outlook for the bridging market is bright with gross advances in the sector expected to see rapid growth from £2.5bn in 2005 to £5.6bn in 2010. In the commercial and residential property sectors values have been rising for the last five years with billions of pounds pouring into offices, shops and industrial property. While the market may have recently suffered various price falls, we can still be very optimistic for 2008.