If you’re looking to buy a plot of land in a quick sale and don’t have time for another type of finance plan to be agreed upon, land bridging finance can ensure you secure the land and complete the sale before you apply for a more amiable type of loan.
At Aurora Capital, we work with a number of lenders that provide bridging finance for land, and we understand the intricacies involved in purchasing land using a bridge loan, as we outline below.
What is land bridging finance?
In short, land bridging finance is a type of bridging loan used specifically to finance land purchases. Generally speaking, property investors and developers are the main users of such loans and typically employ this method of finance when a fast sale is required or they are buying at auction.
Bridging land loans are ideal if you’re looking to redevelop land. They provide coverage and quite literally ‘bridge the gap’ between purchase and sale, although more often than not, developers consolidate their bridging loan debt using another type of loan due to the high interest rates.
If you already own land but need money to fund your redevelopment or repurposing plans, a land bridging loan can also be used for this.
Land bridging finance terms
Bridging loans are short term by default, with most having maximum terms of 36 months. The speed at which money is loaned to you and the shorter repayment terms mean interest rates are much higher than other types of loans. With this in mind, lenders will expect a robust exit strategy to be in place before they lend to you.
Your exit strategy could be the sale of the land once it’s developed, as many property developers do, or it could be acquiring another type of business loan with more favourable and affordable repayment terms which will consolidate the bridging loan.
Applying for a bridging finance loan for land
Applying for a land bridge loan will require some leg-work on your part. As mentioned, every lender will want to see a robust exit strategy. They’ll also favour applicants with a good credit score, and who have a good deposit. Bridge loans don’t cover 100% of your project – they typically will cover 70-80%, so you need to show you have the remainder of the capital needed to complete the land purchase.
Planning permission isn’t always necessary, but lenders are far more likely to provide land finance to you if you want to purchase land or refinance land that has planning permission already in place.
What Costs are Involved in Applying for Land Bridging Loans?
How much it costs to apply for a landing bridging loan depend on the lender you choose to use. However, some typical land bridging finance costs you’ll need to keep in mind are:
- Lender arrangement fees
- Broker fees
- Valuation fees
- Legal fees
Land bridging finance at Aurora Capital
If you’re thinking about buying land but only have a portion of the money needed and a quick sale is necessary, a land bridge loan could be an ideal solution. That being said, this type of finance is not to be entered into lightly due to the fact it’s a short term loan secured against existing property or the asset itself. If you need help deciding if this is a viable route for you, including defining an exit strategy, please contact us for more advice and to start the application process.
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