If the bank says NO, DFS can get you a YES!
Conducting research and due diligence when sourcing funding solutions is prudent practice for individuals and business owners alike. If you’re looking into bridging loans but want to know what alternatives to bridge financing exist, you may be pleased to learn that there are several options available to you, depending on your lending needs.
As one of Australia’s leading private lending specialists, let us take you through some of your options to access fast funding for your business.
A bridging loan, also known as a bridge loan, bridging finance or bridging mortgage, is a short-term loan used to bridge the financial gap between the purchase of a new property and the sale of an existing property. Bridge loans effectively provide temporary funding to cover the period during which the borrower waits for the proceeds from the sale of their existing property.
Effectively, a bridging loan means that you pay two mortgages at once, however, most bridging loans only require interest payments during the bridge period, with the full amount to be repaid with the settlement funds from your current property.
Generally, there are two types of bridging loans; open bridging loans and closed bridging loans.
Open bridging finance allows you to apply for a loan even if you haven’t sold your current house. However, it’s important to understand that there is no guarantee that your property will be sold before the bridging loan’s maturity date. When the maturity date arrives, you must repay the full amount of the loan.
Opting for an open bridging loan can be risky in the current real estate market. Selling a house involves various factors, and it’s not uncommon for homeowners to wait for years before closing a deal. If you encounter difficulties in selling, you may need to reduce your asking price to finalize the sale and repay your bridging loan.
Closed bridging finance, on the other hand, is available when you already have a clear timeline for selling your existing property. This means you have either secured a deal or have a highly interested potential buyer. With a closed bridging loan, there is less risk involved because the funds to cover the debt will be available when the loan expires.
There are several alternatives to bridge financing, depending on your personal and financial circumstances. Your options might include:
A line of credit is a flexible loan option that allows you to access funds up to a predetermined limit. You can withdraw money as needed and only pay interest on the amount you’ve borrowed. This can be useful if you’re unsure about the exact amount of financing you require or if you need ongoing access to funds during the transition period.
If you have sufficient equity in your existing property, you may be able to release some of that equity to finance the purchase of a new property. Options such as home equity loans or a redraw facility (if available on your mortgage) may be able to help you access the funds you need.
It may be worth exploring the possibility of negotiating different settlement dates for the purchase and sale of properties. If you can align the settlement dates, you may not need short-term financing at all!
If you have family members or friends willing to lend you money, you could consider a private loan arrangement. However, it’s important to approach this option cautiously, ensuring clear terms and repayment plans are in place.
If you have substantial savings or cash reserves, you may be able to use them to cover the transition period between buying and selling properties. Understandably, this option could potentially drastically deplete your savings and make them unavailable to put to other purposes.
Private funding loans refer to loans offered by non-traditional lenders. In essence, these funds are not sourced from traditional financial institutions such as banks, credit unions, building societies, or similar financial institutions.
If you’re a business owner in Australia, then you may be eligible for a wider array of loans through private lending than standard home ownership.
Diverse Funding Solutions is proud to be one of Australia’s leading private funding brokers. We have access to over 200 of Australia’s top private lenders, meaning that we can offer an extensive range of financing solutions, regardless of the funding requirement.
If you’re seeking alternatives to bridging loans, then start a conversation with our experienced team. By understanding your unique situation, we can work with you to help source an appropriate funding solution.
Private lending refers to the act of borrowing or lending money between individuals or non-traditional financial institutions, excluding banks or other traditional lenders. It involves a direct agreement between the lender and the borrower, often with terms and conditions tailored to their specific needs.
Yes, interest-free loans in Australia are incredibly rare, and you can reasonably expect to pay interest on a loan provided by a private lender. The interest rates will vary depending on the loan type, terms, duration, whether it’s a secured or unsecured loan and market conditions at the time you apply.
The lender will work with you to devise a suitable exit strategy for how to pay the loan, and set out a resultant repayment schedule. Whether this is via monthly payments or only once your existing home sells will depend on the lender and the terms agreed upon.
Not necessarily — your alternatives to bridging loans may include both secured loans and unsecured loans. Discuss your loan alternatives with the team today.
