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Bridging Loans - Bridging Loans or Private Investors?

Written By Devi Kristanti on Wednesday, October 1, 2014 | 2:18 AM

In the business world, deals and commercial developments are usually financed through loans or investors. When the need arises for a loan quickly, bridging loans are often considered. When a property needs to be secured before a rival can, these loans are often employed since they can provide a business with the money it needs far quicker than a traditional loan can. Once a traditional loan is obtained or the property is resold for a profit, the short term loan is paid off. There are other reasons a company might need money fast, but this is a good example. In most cases, the only other option available for fast money is to rely on a private investor. But which is the better option?

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First, let's look at the interest rates you can expect from either source. A private investor will normally expect fifteen to twenty percent back on their investment. Most bridging loans can be secured for ten percent or less. It's still higher than traditional loans, but much lower than a private investor will ask for. There will likely be extra fees and charges associated with the short term loan, but even with these your overall costs compared to utilising a private investor will still be lower if you opt to use temporary loans. In other words, you'll save money by using a lending company's short term loan options.

What about prepayment penalties? Most private investors will add on an extra fee in the event that you pay back their loan to you before the end of the agreement. On the other hand, most lenders won't charge you a penalty fee for early repayment on bridging loans. Since you'll likely be planning on securing a long term loan or selling the property for a profit, this is important to consider because you'll likely be able to pay off the short term loan early. And lending companies are more reliable since most have been in business for decades or more. Private investors can be dubious at times.

While either method will cost you more than taking out a traditional loan, using private investors or bridging loans are the quickest and most effective way to secure money when you need it. Compared to one another, you'll likely save a huge amount of money and stress by using a reputable lending company instead of a private investor. There are many uses for short term loans and many lending companies that will offer you good terms on them, so consider utilising them when your business needs a quick lump sum of cash.

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