Matthew Robineau
May 23, 2024 2:34:57 PM · 6 min read
Updated on July 05, 2024
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A second charge bridging loan can be a vital financial tool for small to medium-sized business owners.
In this blog, we will explore the key facts and insights about second charge bridging loans, including borrowing limits, loan terms, the distinction between first and second charges, and their application to commercial properties.
A second charge bridging loan is a short-term financing option secured against a property that already has an existing mortgage or loan.
This type of loan allows business owners to access additional funds without refinancing their primary mortgage.
It is typically used to bridge the gap between a financial need and a more permanent funding solution, such as the sale of a property or securing long-term financing.
A 2nd charge bridging loan on a commercial property is a type of secured loan that ranks behind the first charge, typically the primary mortgage. Here’s a step-by-step outline of how it works:
The amount you can borrow on a second charge bridging loan in the uk depends on several factors, including the value of your commercial property, the amount of equity you have in it, and the lender's specific criteria.
Typically, lenders will allow you to borrow up to 70-75% of the property's value, taking into account the outstanding balance of your first charge mortgage.
For instance, if your commercial property is valued at £1,000,000 and you have an existing mortgage of £500,000, you may be able to borrow up to an additional £250,000 to £350,000, depending on the lender's terms.
However, the exact amount can vary based on the lender's risk assessment, your creditworthiness, and the purpose of the loan.
A bridging loan can be either a first charge or a second charge, but it is not necessarily one or the other by default. However, the most common application is a first-charge loan.
To learn more about bridging loans and their role in business finance, read our guide, UK Bridging Loan Insights: Everything You Must Know.
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Navigating the complexities of second charge bridging loans can be challenging. This FAQ aims to clarify some of the most common questions business owners might have.
Borrowers should think about how the borrowed funds will be utilised and ensure that the expected benefits outweigh the higher interest rates and fees associated with this type of financing.
Interest rates for second charge bridging loans are generally higher than traditional mortgages, often ranging from 0.5% to 1.5% per month.
Eligibility criteria typically include having enough equity in the property, a good credit history, and a viable exit strategy for repaying the loan.
Funds can often be accessed within 2-4 weeks, subject to property valuation and lender approval processes.
Yes, the funds from a second charge bridging loan can be used to purchase additional property, among other business needs.
There are a number of other financing options available to individuals and businesses. Some of these include business loans, secured loans, and unsecured loans. Additionally, borrowers may be able to look into a remortgage or equity release.
Yes, additional fees may include valuation fees, legal fees, and lender arrangement fees, which can impact the overall cost of borrowing.
Yes, while flexibility exists, lenders will assess your credit history to determine your ability to repay the loan.
If you default on the loan, the lender can repossess the property, but the first charge mortgage must be settled before the second charge loan.