5 Types of Bridging Loan Lenders: Who are they, and can I approach them directly?

By Stephen Clark | Wednesday 27th December 2023 | 18 minute read

A "bridging loan lender" is the entity that finances a bridge loan. The five types of bridging loan lenders are Family Offices, Private Investors, Private Equity firms, Institutional lenders and Peer-to-peer platforms.

A bridging loan lender provides short-term financing, primarily used in real estate transactions, to "bridge" the gap until longer-term funding is secured or the underlying property is sold. Unlike traditional mortgage lenders, who typically offer longer loan terms focusing on the borrower's ability to repay from regular income, bridging loan lenders assess the loan's viability based on the property's value and the exit strategy. A variety of lenders offer bridging loans, including banks, private finance companies, and specialist bridging firms. The lending landscape for bridging loans is diverse, with both regulated and unregulated lenders. Financial authorities oversee regulated lenders and offer borrower protections, whereas unregulated lenders provide more flexibility but with less oversight.

Each type of lender offers varying criteria (terms, rates, maximum loan sizes, maximum loan-to-values, and conditions) for bridging loans. Inexperienced borrowers may unwittingly cause problems such as deal fatigue, as repeated rejections or prolonged negotiations reduce securing optimal financing. Reasons for rejection by lenders include inadequate exit strategies or insufficient loan security. Understanding each bridging loan lender's specific characteristics, advantages, and drawbacks can help borrowers navigate this process of securing a bridging loan more effectively. This guide provides insight into bridging loan lenders, how they differ from mortgage lenders, and the different types of bridging loan lenders, including their purpose, terms, and conditions, to help you decide whether going directly to a bridging loan lender is the right decision.

 

Thinking About Going Direct To A Bridging Lender

What is a Bridging Loan Lender?

A bridging loan lender is an entity (Family Office, Private Investor, Private Equity, Institutional lender or Peer-to-peer platform) that lends short-term finance, known as a “bridging loan”, to another entity, such as individuals or legally incorporated entities, like companies. These loans are designed to "bridge" the gap in funding until longer-term financing can be secured or the debt is repaid. A bridging loan is typically non-status and high value and is only required for weeks or months. It is often used during property transactions. Bridging loan lenders cater to many needs, including quick property purchases, auction buys, real estate development, and urgent cash flow requirements. They provide rapid funding with flexible terms, albeit usually at higher interest rates than traditional loans, due to the short-term nature and increased risk associated with such lending.

How do Bridging Loan Lenders differ from traditional mortgage lenders?

Bridging loan lenders differ from traditional mortgage lenders primarily in their loan purpose, term, and speed. Bridging loans are short-term, typically lasting from a few months up to a year, designed to provide quick financing to bridge the gap between immediate funding needs and securing long-term financing or selling a property. In contrast, traditional mortgage lenders offer longer-term loans, usually spanning up to 15-30 years, intended for purchasing real estate with a more extended repayment period.

Bridging loans are known for their rapid approval and funding process, catering to urgent or time-sensitive transactions. In contrast, mortgage applications involve a more lengthy and rigorous assessment process, reflecting the long-term commitment and larger loan amounts involved. Additionally, bridging loans often carry higher interest rates due to their short-term nature and the higher risk perceived by lenders.

What are the differences between Bridging Loan Lenders versus Traditional Mortgage Lenders?

Feature

Bridging Loan Lenders

Traditional Mortgage Lenders

Purpose

To provide short-term financing to bridge the gap between immediate cash needs and securing long-term funding or selling a property.

To provide long-term financing for the purchase of real estate.

Loan Term

Short-term, usually a few months up to 3 years.

Long-term, often ranging from 15 to 30 years.

Approval and Funding Speed

Fast approval and funding, catering to urgent or time-sensitive needs.

Slower approval and funding process due to thorough assessment of the borrower’s financial status.

Interest Rates

Generally higher due to the short-term nature and higher risk of the loan.

Generally lower, reflecting the long-term relationship and lower risk of the loan.

Repayment

Typically requires repayment in a lump sum at the end of the term or upon securing long-term financing/sale proceeds of property.

Repaid by monthly instalments, including interest and principal, over the life of the loan.

Risk

Higher perceived risk is due to the short-term nature, the potential non-status of the borrower, and often speculative investments.

Lower perceived risk, secured by the property and assessed based on the borrower's ability to make long-term payments.

Application Process

Less stringent, with a focus on the value of the collateral and the exit strategy.

More rigorous, with an in-depth review of the borrower's credit history, income, and debt-to-income ratio.

Collateral

Primarily real estate of any type and condition.

Primarily well-maintained or new residential properties.


 

What types of Lenders offer Bridging Loans?

More than 200 lenders in the UK market offer bridging loans, each specialising in different market segments and borrower profiles. The most prolific bridging loan lenders are Family Offices, Private Investors, Private Equity, and Institutions. Some alternative banks, not on the high street, provide bridging loans, but these are few and far between. Where they do offer bridging products, these have strict lending criteria due to their regulated oversight and, as such, are only available in “vanilla” circumstances, such as buying a new home before the existing property sells. Peer-to-peer lending platforms have also entered the market, facilitating bridging loans by connecting borrowers directly with individual investors. Some high-profile failures, however, have mired such platforms, leaving investors cautious of their use. 

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What are the differences between various types of bridging loan lenders?

Lender

Focus

Typical Clients

Loan Size

Decision Speed

Flexibility

Family Offices

Diverse, often with a preference for higher-value, bespoke deals

High-net-worth individuals/families

Varies widely, often very large

Moderate to fast

High

Private Investors

Varies by individual, often more willing to consider unconventional deals

Startups, small businesses, individuals

Typically smaller

Fast

High

Private Equity Firms

High-potential return projects, often with significant control or stake in the venture

Medium to large businesses, development projects

Large

Moderate

Moderate to low

Peer-to-peer Platforms

Broad, democratised lending varies by platform and investor interest

Individuals, startups, small to medium businesses

Small to medium

Fast

Moderate to high

Institutional Lenders

Broad, but typically more risk-averse, regulated lending

Individuals, businesses of all sizes

Large

Slowest

Low

This table highlights the general characteristics of each Bridging Loan Lender type, though individual experiences with each lender will vary.

Let’s look at each of these Bridging Loan Lenders in more detail.

A detailed look at the 5 Types of Bridging Loan Lenders

The 5 common types of Bridging Loan Lenders are Family Offices, Private Investors, Private Equity, Peer-to-peer and Institutional Lenders.

1. Family Offices' role in Bridging Loan Lending

A Family Office is a private wealth management advisory firm that serves ultra-high-net-worth individuals or families. Unlike traditional wealth management services, Family Offices offer a holistic approach to managing a family's financial landscape, including investments (including bridging and development loans), estate planning, tax strategies, and philanthropy. 

The two types of Family Offices are single or multi-family offices.

  • Single-Family Offices' serving one family
  • Multi-family offices catering to the needs of multiple families pool resources to provide cost-effective services. 

Family offices are designed to preserve and grow family wealth over generations, ensuring privacy, tailored investment strategies, and continuity in managing the family's financial legacy.

2. Private investors' role in Bridging Loan Lending

A private investor (angel investor/individual investor) is a person who allocates personal capital to invest in various ventures, including bridging loans, property development finance, business startup seed investment, real estate acquisitions, and other investment opportunities. Unlike institutional investors, private investors use their wealth rather than pooled funds from other sources. They offer financial resources directly to the borrower or entity they invest in. Private investors seek to increase their wealth through potential returns on their investments. For example,  Bridging Loans can provide a staggering 7-30% annual return. In the case of bridging loans, private investors typically only offer financial contributions to the borrower. In other scenarios, Private Investors may also provide valuable mentorship, industry expertise, and networks to support the growth and success of their investments. Their involvement can range from passive, purely financial contributions to active roles in strategic decision-making within the ventures they fund. A private investor offers versatile funding solutions such as debt-based loans or equity-based investments, which are particularly useful to special purpose entities (SPE) often created as vehicles for property development.

3. Private Equitys' role in Bridging Loan Lending

A Private Equity (PE) firm, in the context of lending for bridging loans, operates as a specialised investing company that provides short-term financing solutions to businesses or individuals, primarily for real estate transactions, development projects, or other situations requiring quick funding. Unlike traditional banking institutions, Private Equity firms invest capital sourced from high-net-worth individuals, institutional investors, or their funds, focusing on opportunities that offer higher returns at higher risks. In bridging loan scenarios, these firms evaluate the potential value and risk associated with the loan proposal, offering tailored financing options that can be executed rapidly to meet the borrower's urgent needs. Their involvement in bridging finance underscores a more aggressive investment strategy, aiming to capitalise on the quick turnover and higher interest rates that bridging loans typically entail while providing borrowers with crucial liquidity for transitional periods.

4. Peer-to-peer platforms' role in Bridging Loan Lending

Peer-to-peer (P2P) lending is an innovative financing model that connects borrowers directly with individual lenders or investors through online platforms, bypassing traditional financial institutions. Peer-to-peer lending is fulfilling one borrower's needs to one lender, whereas crowd lending is funding one borrower's needs by aggregating multiple lenders. The two terms are frequently used synonymously. 

In the context of bridging loans, Peer-to-peer platforms offer a dynamic marketplace where borrowers seeking short-term, fast-access funds for real estate purchases, property development, or urgent financial needs can secure financing. This model allows for potentially more flexible terms and faster funding times as it leverages technology to streamline the application and approval processes. P2P lending in bridging finance often appeals to borrowers and investors for its ability to provide competitive interest rates, driven by the direct negotiation between parties and the reduced overhead costs associated with digital platforms.

Several Peer-to-peer platforms have unfortunately failed, causing anxiety amongst its user base of investors and borrowers alike. One such notable peer-to-peer platform that went into administration was “Lendy”. Lendy –A peer-to-peer property lending platform–fell into administration on Friday, 24 May 2019. It had over £160m outstanding in its development finance and bridging loan book, of which £90m was in default at its collapse. Lendy's collapse occurred at the same time as an investigation by the Financial Conduct Authority (FCA) into their lending practices.

5. Institutional Lenders' role in Bridging Loan Lending

In bridging finance, an institutional lender refers to a bank, credit union, or other financial institution providing short-term loans designed to "bridge" the gap between immediate funding needs and securing longer-term financing. These entities typically have a structured set of criteria and processes for loan approval, offering more significant sums of money with the expectation of a secure return on investment. Institutional lenders are known for their reliability and regulated environment, providing borrowers with peace of mind. However, bridging loans from banks and other institutional lenders come with more stringent approval conditions and longer processing times than family offices, private investors or specialist lenders, reflecting the comprehensive risk assessment and due diligence these institutions undertake before extending credit.

Are there Lenders specialising in specific types of bridging loans, such as residential or commercial properties?

Yes, within the bridging finance sector, lenders often specialise in specific types of bridging loans–they tend to stick to what they know and feel comfortable with. Each lender will tailor their lending to particular segments, typically characterised by the type of real estate property being used as collateral or by the purpose of the loan, for example, a loan for plant machinery or business cash flow. As such, some lenders specialise in residential or commercial properties, reflecting these markets' distinct demands and risk profiles. Lenders who specialise in residential bridging loans focus on individuals needing quick finance for buying a property, whether it's a new home, renovating a buy-to-let, or solving temporary cash flow issues. In contrast, commercial bridging loan providers cater to businesses and investors looking to purchase or develop commercial properties, including office buildings, retail spaces, and industrial units. This focus enables lenders to gain deep knowledge and experience in a niche sub-market and offer bespoke terms and insights, ensuring a borrower’s financing solution makes business sense.


Can I go directly to a Bridging Loan Lender?

No, you cannot always go directly to a Bridging Loan Lender. Bridging loan lenders will require the borrower to enquire via a bridging loan broker or will accept bridging loan enquiries directly from the borrower. 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 and keep their overheads low by not employing direct sales teams (Business Development Managers). Instead, they rely on brokers as their sales team to introduce them to new bridging loan applications. Conversely, the larger, mainstream bridging loan lenders are more adept at dealing with volumes of inbound calls from new enquirers. 

What are the benefits or drawbacks of going directly to a Bridging Loan Lender?

The significant benefit of going directly to a bridging lender is that you won't have to pay bridging broker fees, but there are also many drawbacks. When weighing up the pros and cons of directly sourcing your bridging loan with a lender, there are several vital points to consider.

The pros and cons of going directly to a Bridging Loan Lender

Criteria

Pros

Cons

Cost Savings

Potential to avoid broker fees, reducing overall costs.

The borrower receives only one quote, which may not be the best rates or terms, increasing the cost of borrowing. A broker will source multiple quotes covering a range of rates and terms from multiple lenders.

Direct Communication

Direct communication with the lender may lessen delays.

Smaller Family Offices and Private Investors are not consistently good communicators.

 

Some lenders are not customer-centric and do not offer a customer service level borrowers may expect.

Simplified Process

Fewer parties are involved, thus simplifying the process.

 

Personal Relationship

Opportunity to build a personal relationship with the lender.

Borrowers may not shop around for the best rates because of the personal relationships they’ve built.

Faster Decisions

It may have quicker decision-making and loan approval because of fewer stakeholders.

The speed of decisions is lender-specific; if the borrower chooses an inefficient lender, they might not know that until it's too late.

Transparency

Full transparency in loan terms and conditions directly from the lender.

Borrowers have no direct comparison for transparency and, without counsel, have to trust what the lender says.

Advice

Lenders know their products intimately.

Direct advice is limited to the lender's products, not the “whole of the market”.

Middleman

No intermediary is involved, reducing the potential for misunderstandings. 

Lenders may not be frequently chased at every loan process step, allowing for slippage.

Negotiation

Experienced borrowers with a strong application will have some negotiation opportunities. 

Limited negotiation experience might not yield the best terms, especially if the borrower has approached fewer lenders.

Best overall terms

If the borrower selects the correct niche lender that fits their requirements, they may get the best overall terms.

It is unlikely that a borrower will know all the best lenders to approach for their specific requirements, so they may not achieve the best deal.

This table illustrates the 10 common considerations for going directly to a Lender. However, there’s one other that borrowers should be aware of before contacting a bridging lender—and you probably have never heard of it—and it's called deal fatigue.


What is deal fatigue, and how does it affect securing a Bridging Loan with a Lender?

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. 

Deal fatigue can arise when bridging loans from a challenging loan application is presented to multiple lenders. This is especially true of complex property developer loans, such as bridging loans for property development or development finance. 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.

4 Key factors contributing to Bridging Loan deal fatigue

  1. Repetitive Bridging Loan Submissions. The borrower may submit similar or slightly modified applications to different lenders for 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.
  2. Lack of Fresh Perspective from the Bridging Loan Lender. As lenders encounter similar applications from the same borrower, 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.
  3. Diminished Interest of Bridging Loan Lender. 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.
  4. Risk of Bridging Loan application being disregarded. 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.

How can I avoid deal fatigue?

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

Why do Bridging Loan 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. 


Why might a Lender reject a Bridging Loan application?

Bridging loan applications may be rejected for several reasons. Still, the fundamental top two reasons are that the loan application or the borrower does not meet the lender's requirement.

Let's look at the reasons for bridging loan application rejections in more detail.

5 reasons why your bridging loan application may be rejected.

  1. The bridging loan value may be too high or too low.
  2. The loan-to-value of the security may be too high.
  3. The type of security may be outside of the bridging lender's speciality.
  4. The duration of the bridging loan may not be aligned with the lender's deal flow.
  5. The borrower may not meet the bridging lender's requirements.

5 reasons why a borrower may be rejected for a bridging loan application.

  • The borrower is already known to the lender and has been previously rejected, regardless of whether their circumstances have changed.
  • 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, such as the debt-to-income ratio requirement.

What is a Lender's deal flow, and how does this affect their decision to lend?

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. 

An example of lenders tightly managing their deal flow was during the Bank of England (BoE) base-rate hikes between December 2021 and August 2023. During this period, lenders delayed lending decisions until after the BoE rate announcements and then chose only the lower-risk lending opportunities up to their total lending limit.

Another example of how deal flow matters to lenders is that if a lender has allocated enough funds to their unregulated bridging lending but has funds available for regulated loans, they will focus on expediting that financing. Careful deal flow management enables lenders to spread the risk of their loan book.


What is 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).

4 Key points about regulated Bridging Lenders

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. 

  1. The FCA regulates less than 50% of bridging loans in the UK. The FCA regulates certain types of loans, including some bridging loans. Regulated bridging loans accounted for 48.7% of all transactions in Q2 2023. 
    The regulation ensures that lenders adhere to specific standards and treat borrowers fairly. This regulatory oversight protects consumers and maintains the financial system's integrity. 
  2. Regulated Bridging Loans have 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.
  3. A Bridging Loan must meet specific criteria to be regulated. 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 companies or for commercial purposes may not fall under the same regulatory framework.
  4. Compliance requirements apply to regulated bridging loans. Regulated bridging lenders must comply with the regulatory authority's specific rules and requirements. This can include conducting affordability assessments, providing clear and accurate information to borrowers, and ensuring fair treatment throughout the loan process.

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. Your loan will be unregulated if you want to purchase an investment property where you or close family members currently or intend to reside.


What is 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. 

Unregulated Bridging Lenders - 5 key points.

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.

1. 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.

2. 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.

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

4. Risk Considerations. Borrowers dealing with unregulated bridging lenders should know 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.

5. 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.


Conclusion: Should I go directly to a Bridging Loan Lender?

Family Offices, Private Investors, Private Equity firms, Institutional lenders, and Peer-to-peer platforms –each bridging loan lender type offers a unique approach, catering to varied borrower needs with specific terms, conditions, and niches of expertise. In our experience, sourcing the right lender for the right loan is the first step. Deep relationships with your chosen lenders will influence your loan’s success.

Obtaining a bridging loan is rarely a linear process. When one lender rejects your application, you’ll often need another one or two on the sidelines, ready to step in. Whether you place your loan with an agile Private Investor or specific Family Office, want to leverage the scale of finance available from Private Equity firms, more suited to a Peer-to-peer platform, or need the reliability of Institutional lenders, the choice ultimately hinges on your specific financial requirements, project nature, and risk appetite. Approaching lenders directly or engaging the expertise of a broker is always the borrower's decision. You must, however, equip yourself with the insights to make informed decisions, ensuring your approach aligns with your goals and timelines and gets you to where you need to be.


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