Bridging finance is a fast-paced, relatively expensive form of short-term funding which works because of the healthy profit margins in development deals.
As with all finance, the lenders need to balance their risk and so the bar for acceptance can be relatively high. If a prospective borrower has a less-than-perfect credit score, or lacks sufficient collateral to secure the bridging finance, most lenders will not agree the loan.
This is where non status bridging loans come in. Ideal for those who do not meet the traditionally required risk criteria, they place a different set of requirements at the forefront of the loan.
How Do Non Status Bridging Loans Work?
In non-status finance the lender primarily concerns themselves with the potential of the deal, usually a development project of some kind.
Where the lender recognises the promise and potential of the project, they may agree on a non-status bridging loan, despite a poor credit history or lack of security.
During the application process the lender will examine the Gross Development Value (GDV) in great detail, and not the income or cash-flow levels of the borrower.
These loans can gain approval and a release of funds very quickly, making them ideal for developers who spot a great opportunity and need to access funding at short notice.
More about Non Status Lenders
Non Status Lenders do not have to meet the same strict criteria as those regulated by the FCA.
In terms of the speed with which they can approve and release funds, this actually gives them a substantial advantage over competitors who do. Without the complex checks and balances required by financial regulation, they can work in a more agile fashion, a key factor for many who seek this kind of funding.
Because these lenders are taking more risk, they also generally charge more to compensate. They will offer a lower LTV than you might find elsewhere.
All commercial bridging finance is currently unregulated in the UK.
What are the biggest Differences between Status and Non Status Bridging Loans?
Non Status loans are likely to have:
- Higher Interest Rates
- A Lower Loan to Value (LTV) Ratio
- Gain Approval Faster
- Non Status Loans are rarely offered by new lenders because of the experience required to offer such a flexible product
- Some will consider Soft Assets (pensions, investment portfolios etc) as collateral