Bridging Loan – Which Is Best – Open Ended or Closed?
If you are looking to move business premises and have found a suitable commercial property after weeks of searching then you will not want to miss the opportunity. If you have spare funds available to complete the purchase outright then so much the better but many businesses require a loan to buy property in view of the amount involved.
So, if you have a commercial mortgage agreed then that is good news. However, if you also require the funds from the sale of your existing property to help complete the purchase of the new one then you will ideally need to have found a buyer for it. You will no doubt be looking for a contemporaneous sale and purchase.
Sometimes things don’t quite go according to plan and either the completion on the sale of your existing commercial property may be delayed or, worse still, the sale may have fallen through leaving you to find another buyer that could take weeks if not months.
You are left with having to decide whether to delay the completion date on the purchase of the new property, pull out completely or, if needs must for a number of reasons, still go ahead with the purchase on the original date agreed.
If it is the later that you choose, you will probably need to sort out some short-term finance to complete the purchase. One of the ways of doing this is to arrange bridging finance which is covered elsewhere on this website. What we wanted to touch on was whether it was best to try to arrange open-ended or closed bridging finance.
Open-ended bridging finance is where there is no definite date known as to when the liability will be cleared because, for instance, you don’t currently have a buyer for your existing property or you do have a purchaser but contracts have yet to be exchanged.
A closed bridging loan is where contracts have been exchanged on the sale of your existing property and you have agreed a completion date.
A lender is going to look more favourably upon a closed bridging loan because their risk is lower than with open-ended bridging finance. Therefore, the interest rate that you are charged with a closed bridging loan and the security margin are probably going to be lower.
In conclusion, therefore, a closed bridging loan is less of a risk to both you and the lender, it is likely to cost you less than an open-ended bridging loan and, therefore, is the preferred option.
We hope that the above has been of assistance.