Christian Faes is managing director of Montello Bridging Finance
I recently participated in an excellent round table discussion for Bridging Introducer magazine. It was, as always, a sensible discussion on recent market issues with some of the principals from the bridging finance world.
One of the topics on the agenda for the panel was whether there should be some sort of time limit on how quickly a loan needs to be done in order to qualify as a 'bridging loan'.
The agenda item was innocuous enough, and I didn't expect there to be much debate, other than a bridging loan should be a loan that is done quickly. Unexpectedly, this topic caused quite a heated discussion amongst the panel.
I have always thought that a bridging loan is a short term loan that is completed quickly.
However, it seems that there are many within the industry that do not agree.
It seemed that the opinion ranged from a bridging loan being simply a loan for a short period of time - irrespective of how quick the loan took to complete; through to a bridging loan being a loan that a mainstream lender would not lend on.
I was flabbergasted when one of the participants on the panel said something along the lines of: 'If we do a loan that is for 12 months, but it took us six months to underwrite, then this is of course still a bridging loan'. I couldn't disagree more!
If a loan takes six months to underwrite, or even anything longer than a week or so, then it raises the necessary question of why the borrower isn't getting mainstream finance. That is, if the funding isn't required quickly, then I don't think that it qualifies as a bridging loan.
Bridging finance must be quick finance - not just quick in terms of its duration but also a loan that is quick to complete.
If it isn't, then it's simply a non-mainstream loan; and if its just a non-mainstream loan, then any real comparison of the terms between lenders (most importantly with regards to interest rate) is not possible.
If Bridging Lender A can underwrite and complete a deal within a couple of weeks, then comparing their interest rate with Bridging Lender B, that takes a couple of months to underwrite and complete the same deal is not possible.
There are some bridging lenders in the market that are offering seemingly low bridging finance interest rates but if it takes as long as a mainstream bank loan to underwrite and complete then their interest rate is actually quite expensive.
As we've said before, if a deal takes longer than two weeks to complete, then its just not bridging finance; and borrowers and their advisers should be asking whether they are really getting a cheap bridging loan or really just expensive buy-to-let finance?
