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Bridging Loan Lenders: Who are they and can I apply direct?

By Stephen Clark | Wednesday 27th December 2023 | 10 minute read

A bridging loan lender is the source of the finance that funds a bridge loan.

Bridging loan lenders provide the financial backing for bridge loans, categorized into four main types: private lenders, family offices, private equity firms, and institutional lenders like banks. Each offers different loan terms, influencing loan size, duration, and conditions. Not all lenders directly accept borrower inquiries; some prefer working through brokers, especially for niche product criteria. Directly approaching a lender can save broker fees. Still, borrowers must be wary of "deal fatigue," where repeated or similar loan applications to various lenders might reduce the chances of approval. A good broker can help avoid this by matching the borrower with the right lender.

What is a bridging loan lender?

A bridging loan lender is the source of the finance that funds a bridge loan.

The four types of bridging loan lenders are private lenders, family offices, private equity firms, and institutional lenders such as banks. Each type of lender offers varying degrees of loan terms, affecting the size of the loan, the length of the loan term, and the rates and conditions attached to the lending of the bridging loan.

Can I go directly to a bridging lender?

No, not always. Bridging loan lenders either accept bridging loan enquiries directly from the borrower and/or require the borrower to enquire via a bridging loan broker. Where a lender has niche product criteria, they prefer dealing with brokers rather than borrowers directly because the likelihood of the borrower's requirements matching the lender's criteria is low. Many niche lenders are small in size and, therefore, don't have large sales teams or call centres able to manage high volumes of inbound calls from new enquirers. 

What is the benefit of going directly to a lender?

One significant benefit of going directly to a bridging lender is that you won't have to pay bridging broker fees.

Sounds great, right? Before you take this route, there's one significant consideration you should be aware of before you contact a bridging lender—and you probably have never heard of it—and it's called deal fatigue.

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What is deal fatigue?

A market phrase called 'deal fatigue' can occur when a bridging loan lender reviews either the same bridging loan application from the same borrower or multiple variations of the loan application from the same borrower. 

In bridging finance, deal fatigue can arise from a challenging loan application presented to multiple lenders. This is especially true of complex property developer loans such as a bridging loan for property development or development finance. This loan application fatigue specifically manifests when various lenders have previously reviewed a similar application from the borrower or multiple variations of one. Consequently, these lenders may no longer be inclined to reassess the application, even if subsequent modifications render it distinct from their initial evaluations.

Key factors contributing to deal fatigue in this context include:

Repetitive Submissions: The borrower may submit similar or slightly modified applications to different lenders in pursuit of the most favourable terms. However, the lenders, having already reviewed a comparable application, may grow fatigued by the perceived repetitiveness and, as a result, be less motivated to reevaluate subsequent submissions.

Lack of Fresh Perspective: As lenders encounter similar applications from the same borrower, there is a risk that they may form preconceived notions about the borrower's financial profile or the nature of the transaction. This can lead to a lack of enthusiasm for revisiting the application with a fresh perspective, even if substantive changes have been made.

Diminished Interest: The cumulative effect of multiple lenders deciding against pursuing the initial or similar applications may contribute to a general decrease in interest among potential lenders. This can create a challenging situation for the borrower, as the perception of diminished appeal may persist even when the actual application has evolved.

Risk of Application Disregard: Deal fatigue in bridging finance can potentially result in lenders opting not to review subsequent applications, assuming they align with previously disregarded submissions. This risks the borrower's application being overlooked, even if it presents a new and potentially attractive proposition.

Effective communication and transparency become crucial to navigating deal fatigue stemming from a challenging loan application offered to multiple lenders. Borrowers should proactively communicate changes in their financial circumstances or modifications to the transaction structure to ensure that lenders are aware of the evolving nature of the application. Additionally, working with experienced financial advisors or mortgage brokers can help present the application in the best possible light and highlight the unique aspects that differentiate it from previous submissions, potentially rejuvenating lender interest.

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How do I avoid deal fatigue?

Getting to the right lender first time is crucially important for borrowers—and not just when the loan needs to be completed quickly. Knowing which lenders will want loan applications is one of the benefits of a good bridging loan broker, and it helps avoid deal fatigue. 

Why do lenders get deal fatigue?

It costs time and money for lenders to review any finance applications. If the lender has already seen a loan application and rejected it, that will be because of several reasons.

The reasons why a bridging finance application may be rejected or declined.
Bridging finance applications may be rejected for several reasons, but the basic top two reasons are due to:

1. The loan application does not meet the lender's requirement
2. The borrower does not meet the lender's requirement

Let's look at these in more detail.

• The loan application may not meet the lender's requirements for the following reasons:
• The loan value may be too high or too low.
• The loan-to-value of the security may be too high.
• The type of security may be outside of the lender's speciality
• The duration of the loan may not be aligned with the lender's deal flow

The borrower may not meet the lender's requirements for the following reasons:

• The borrower is already known to the lender and has been previously rejected
• The borrower fails an anti-money laundering check
• The borrower fails a credit check because they've previously defaulted on other loans
• The borrower is deemed not reliable enough to pay back its loans
• For regulated bridging loans, the borrower's income falls short of affordability checks, like the debt-to-income ratio.

What is a lender's deal flow?

A lender's deal flow refers to the volume and frequency of investment opportunities or transactions that a lender evaluates, processes, and potentially funds over a period. In the context of bridging lending, such as in the financial or real estate sectors, deal flow is a critical metric that reflects the pipeline of potential deals and the overall activity of the lender. The term is commonly used in venture capital, private equity, family offices and other financial sectors. Here are some key points related to a lender's deal flow.

Can a lender's deal flow affect whether they want to lend to me?

Yes. Lenders rely on placing funds into the market to obtain a return on investment via interest and fees. Any given lender will only have a limited amount of money to deploy at any given time - they do not have unlimited funds.

As such, lenders look at the quality of all the finance applications for a given period and choose the ones that offer them the best return on investment, best meet their risk profile, best suit their lending strategy or a combination of all three.

What's a regulated bridging lender?

A regulated bridging lender is a finance provider that offers bridging loans under regulatory oversight and compliance. In the context of UK financial services, "regulated" refers to being subject to regulatory authorities and laws that govern lending practices regulated by the Financial Conduct Authority (FCA).

Here are some key points about regulated bridging lenders:

FCA Regulation: In the UK, the FCA regulates certain types of loans, including some bridging loans. The regulation ensures that lenders adhere to certain standards and treat borrowers fairly. This regulatory oversight aims to protect consumers and maintain the financial system's integrity.

Consumer Protection: When a lender is regulated, borrowers may benefit from increased consumer protection. This can include transparency in terms and fees, clear communication, and adherence to responsible lending practices.

Criteria for Regulation: Not all bridging loans are regulated. Regulation typically applies when the borrower is an individual or a small business, and the loan is secured against a property that is or will be occupied by the borrower or their immediate family. Loans to larger businesses or for commercial purposes may not fall under the same regulatory framework.

Compliance Requirements: Regulated bridging lenders must comply with specific rules and requirements the regulatory authority sets. This can include conducting affordability assessments, providing clear and accurate information to borrowers, and ensuring fair treatment throughout the loan process.

It's important for borrowers to understand whether a specific bridging loan falls under regulatory oversight and to be aware of the protections provided by such regulation. If you're considering a bridging loan, especially if it involves properties that are your primary residence or that of your family, you will need to work with a regulated lender. If you're looking to purchase an investment property where you or close family members currently or intend to reside in then your loan will be unregulated.

What's an unregulated bridging lender?

An unregulated bridging lender is one whose business activities are not being overseen by the UK Financial Services Authority, the FCA. Not all types of bridging loans are regulated by the FCA. The regulatory status depends on factors such as the loan's purpose, the borrower's, and the type of property involved.

Here are some key points about unregulated bridging lenders:

Lack of Regulatory Oversight: Unregulated bridging lenders operate without being subject to specific regulations imposed by financial authorities. As a result, they may have more flexibility regarding the types of loans they offer and the criteria they use to assess borrowers.

Commercial Transactions: Bridging loans for commercial purposes, such as those involving non-residential properties or large businesses, may often fall into unregulated loans. These loans are generally considered for business purposes, and the regulatory protections afforded to consumers may not apply.

Less Stringent Criteria: Unregulated lenders may have fewer restrictions on their lending criteria than regulated lenders. This flexibility can benefit certain borrowers, such as businesses seeking short-term financing for commercial property transactions.

Risk Considerations: Borrowers dealing with unregulated bridging lenders should know that they may have fewer consumer protection measures than regulated loans. It becomes essential for borrowers to thoroughly understand the loan terms, including interest rates, fees, and repayment conditions.

Professional Advice: Due to the potentially complex nature of unregulated bridging loans, borrowers are often advised to seek professional advice from financial advisors or legal experts familiar with commercial finance.
When considering a bridging loan, borrowers must carefully assess their needs and the nature of the transaction. Whether dealing with a regulated or unregulated lender, clear communication and a thorough understanding of the terms are essential to making informed financial decisions.

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Who lends bridging finance?

Bridging loans are offered by a variety of lenders, including some banks and institutions, as well as many alternative finance providers such as:

• Family offices
• Private investors
• Venture capitalists
• Private equity firms
• Specialised lenders

Specialist Bridging Finance Lenders

Lenders exist who specialise only in providing bridging loans. These lenders often have a streamlined process for quick approvals and disbursements, making them a popular choice for borrowers needing fast financing for property transactions.

Alternative Finance Providers

Non-traditional or alternative finance providers, including peer-to-peer lending platforms and crowdfunding platforms, may offer bridging loans. These lenders often provide more flexible terms and may be open to financing unconventional or unique transactions.

Specialist Finance Companies

Some finance companies specialise in short-term and bridging finance. These companies may cater to specific industries or types of transactions and can provide customised solutions.

Private Banks

Private banks may offer bridging loans, particularly for high-net-worth individuals or businesses with substantial assets. They may also provide more personalised service and tailored solutions.

Banks and Traditional Lenders

Many traditional banks provide bridging loans as part of their lending services. These loans may be available for both residential and commercial purposes. However, the approval process with traditional lenders can be more rigorous, and the timeline for loan approval may be longer.

Mortgage Brokers

Mortgage brokers can assist borrowers in finding suitable bridging loan options by connecting them with various lenders. Brokers have access to a network of financial institutions and can help navigate the complexities of securing bridging finance.

When seeking bridging finance, borrowers should carefully consider their needs, the purpose of the loan, and the lender's specific requirements. Interest rates, fees, and repayment terms vary widely among lenders, so shopping around and comparing offers is advisable. Additionally, seeking professional advice from financial advisors or mortgage brokers can help borrowers navigate the process and choose the most suitable option for their circumstances.

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Do all lenders lend commercial bridging loans?

Not all lenders offer commercial bridging loans, but many finance lenders do. A commercial bridging loan is typically a short-term loan secured against a commercial or group of properties. They are commonly used in real estate transactions or for commercial purposes and can help businesses or individuals secure finance quickly. Terms, eligibility criteria and bridging loan rates can vary widely among lenders, so it's advisable to seek a broker's assistance to access multiple loan offers before choosing a lender. Commercial bridging loan brokers can help you navigate the available options and find a solution that suits your specific needs.

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Second charge bridging loan lenders 

Second-charge bridging loans are short-term financing where a lender takes a second charge on a property with an existing mortgage. While not all lenders offer second-charge bridging loans, bridge finance providers such as specialised lenders do. The availability of these loans can vary depending on the region and the lender's policies. Contact us today for expert assistance if you're seeking a second-charge bridging loan.

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Final Thoughts About Bridging Loan Lenders

Navigating the complexities of securing finance for bridging loans involves understanding the landscape of lenders, including private investors, family offices, private equity firms, and institutional banks. Direct approaches to lenders can bypass broker fees, but the risk of 'deal fatigue' from repeated applications makes selecting the right lender crucial. Bridging loans offer quick, tailored finance solutions, especially for challenging projects like property developments, highlighting the importance of matching borrower needs with lender specialities to streamline the financing process effectively.

 

Understanding the landscape of bridging loan lenders is crucial for anyone considering this short-term financial solution. Each type of lender offers unique terms and conditions, from private lenders and family offices to private equity firms and institutional banks.

While direct engagement with a lender can save on broker fees, it's essential to be mindful of pitfalls like deal fatigue, which can arise from repeatedly presenting similar loan applications. Getting the best bridging loan deal, whether regulated or unregulated, requires a solid network of lenders and a clear grasp of their criteria and deal flow. Engaging a skilled bridging loan broker can be invaluable in this process, helping to match borrower's needs with the right lender and avoiding unnecessary rejections or delays. Ultimately, whether for commercial purposes, property development, or securing a second-charge loan, the key to success lies in a well-informed approach, understanding the nuances of the market, and choosing the right partner for your bridging finance needs.

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We're experienced financial brokers with an extensive network of over 200 UK bridging lenders, including private equity firms, investors and family offices.

Get expert assistance today to secure your short-term bridging loan. We're on hand to answer any questions.

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