December 6, 2016
Bridging loans are useful tools in the world of property development. They can be used in a number of situations when high street lending either isn’t available or can’t be organised in time to complete an important deal.
But these types of loans come in a variety of formats, with open and closed ended loans two important distinctions.
We take a closer look at both...
A key aspect of bridging loans – whether open or closed – is the exit strategy. This shows your lender how you intend to pay off your loan and plays a big part in the success of your loan application.
Usually, there are three main exit strategies...
The difference between the two loan types is when the exit strategy comes into effect.
Simply put, an open ended loan doesn’t have a set repayment period. This means you can decide how much to pay off and when. You’ll still need an exit strategy, but just not a set date for it.
With a closed loan, though, you’ll be given a final date on which to pay off the remainder of the loan due.
It means that with a closed loan, you’ll need to be pretty confident with your exit strategy.
For example, if you’re looking to exit via the sale of a property, you’ll need to have the completion date set before the date of the final loan payment.