When bridging finance goes wrong, you can help put it right – Allison

But projects can go wrong, and property chains break down, meaning the borrower is unable to repay their bridging loan on the due date.  

The good news is that brokers can help minimise the chances of this happening and, if it does, step in to help. 

Why deals go wrong 

There are many reasons a borrower can’t repay their bridging loan. 

They might be selling one property to pay for another and the completion has been delayed. Maybe it was the original reason for the bridging loan, but if their sale falls through at the 11th hour, they still have a problem.  

Perhaps the mortgage they were refinancing onto has been pulled.  

With development finance, there can be even more potential pitfalls. Work can be delayed because of anything, from bad weather to planning permission not being granted, or even the builder disappearing offsite. 

Plus, increases in the cost of materials over the last two years have led to borrowers simply running out of funds to complete the project. 

What happens next?  

This depends on the lender, the borrower and you.  

In the best-case scenario, the lender and broker have kept in touch with the borrower throughout the term to catch any problems in time to resolve them.  

Brokers can also check in with borrowers to make sure they’re on track to repay their loan. 

If something goes wrong during the term, the lender should work closely with the borrower and broker to find solutions. We’ve been known to help our customers find a new builder or source materials, for example. 

If it’s still not possible to repay on time, the lender will hopefully show forbearance, with an extension of the term or extra funds to complete the project. You might be able to speak to the lender on behalf of the borrower to understand their options. 

By maintaining regular contact, we anticipate when a borrower may require an extension to allow them to exit and make a profit. Sometimes we make more practical interventions, including stepping in to help manage the project. 

Refinance options 

If forbearance isn’t possible, you’ll need to look at funding options with another lender.  

This could be a re-bridging loan or, if it’s a wind and watertight development, a developer exit loan.  

Both repay the existing lender in full, give the borrower longer to repay the new loan and sometimes extra funds to complete the project. 

It may mean the borrower incurs extra costs and fees, but the worst-case scenario of the property being repossessed will be avoided.  

Prevention better than cure  

Nobody can foresee all the possible problems in a property project because sometimes things go wrong through no fault of the borrower. 

But you can choose lenders that take a careful approach to underwriting and try to pre-empt and address problems throughout the term of the bridging loan.  

Look for those that focus on the exit strategy and put into place contingencies for costs and timescales.  

Post-completion customer service sometimes gets forgotten in favour of rates, speed and service when you’re sourcing a lender and loan.  

But how a bridging lender looks after the borrower after lending the funds can be an important factor in whether or not they successfully repay the loan.  

It can not only save the purchase or property project, but also potentially your relationship with the borrower and your reputation with the lender.