Central Bridging: Regulated & Unregulated Bridging Loans Explained

January 11 12:30 2019

Whilst Bridging Loans have grown enormously in popularity in recent years and can now be used for an unprecedented variety of different purposes, they still come in just two principle forms, either regulated or unregulated.

Whichever form, they can be an ideal solution for both individuals or businesses needing to move quickly, either to take advantage of time limited opportunities or to resolve pressing emergency situations. Unregulated loans tend to be more numerous than regulated but both are designed to “bridge” the gap until longer term finance can be arranged or an underlying security is sold.

What exactly is the difference between the two types of loan?

In simple terms a regulated bridging loan is a loan secured by a charge over a residential property which is lived in by the borrower or by members of the borrowers family. Regulated bridging loans are subject to strict criteria to protect unwary homeowners from taking out loans they ultimately can’t afford. They are regulated by the Financial Conduct Authority (FCA) and fall into two distinct types, first charge loans and second charge loans otherwise known as consumer credit loans. All loans where the purpose is for personal, as opposed to business use, are regulated.

Probably the most common use of a regulated bridging loan is for the purchase of a new home when a property chain breaks down. A bridge loan in these circumstances will enable a homeowner to proceed with a purchase of the new home even if they lose the buyer on their existing home.

Broadly speaking, unregulated loans will be used by businesses to raise short-term capital for a variety of business purposes or to purchase commercial property. For all loans where the purpose is demonstrably commercial, unregulated bridging loans are ideal.

Unregulated loans are not subject to oversight by the FCA but responsible lenders keep a close watch on FCA regulation as a matter of course to ensure best practice. There are also several strong self-regulatory bodies that exist to promote transparency, standards and best practice. Most notable are the Association of Short-Term Lenders (ASTL), the National Association of Commercial Finance Brokers (NACFB) and the Finance Industry Broker Association (FIBA). These three bodies increasingly join forces to promote training and best practice in the short-term lending industry.

As mentioned earlier, unregulated bridging loans tend to be more numerous than regulated, a fact explained by the huge variety of purposes ranging from purchasing investment properties at auction and often renovating or refurbishing these properties right through to releasing funds from existing property to resolve pressing business creditor issues or simply to inject capital into a business. In addition to UK based businesses unregulated loans are also offered by some lenders to offshore companies and overseas investors keen to invest in the UK.

Irrespective of whether a bridging loan is either regulated or unregulated the speed of completion is usually of prime importance. This speed allows borrowers to take advantage of time-constrained opportunities or to resolve pressing creditor issues.

The key components of a successful bridging loan, be it regulated or unregulated, are a suitable asset, acceptable use of funds and a clearly defined exit strategy. Responsible lenders will always place a strong emphasis on the strength of a borrowers exit strategy, be this sale of a property, refinancing with a longer-term lender or capital from another source.

Still unsure and need to explore your options? Why not consult an expert?

Central Bridging have vast experience working in both the regulated and unregulated sectors and although we chose not to offer regulated loans we still retain the services of market leading compliance advisers to ensure that we always differentiate correctly between the two. Our success is founded upon the stability of our loan book and upon the reputation we have built for resolving often complex problems in a fully compliant fashion.

We are a principal lender offering a range of loan facilities for business use from £100K to £2.5M over periods from 3 to 24 months. Our loans are secured on freehold property across England and Wales and we are experts in providing loans for overseas investors, offshore companies and trusts looking to invest in the UK.

Crucially you will always speak to a decision maker who will take time to understand you and your situation and unlike some of the bigger banks we will then tailor a solution that best suits your needs rather than our own.

Why not give us a call on 03332 400 506 for an informal chat about your options.

Media Contact
Company Name: Central Bridging
Contact Person: John Clifford
Email: Send Email
Phone: 03332 400 506
Country: United Kingdom
Website: https://www.centralbridging.co.uk