Can you get a bridging loan with bad credit?

Commercial Mortgages

When you’re struggling to secure funding or have been outright refused, a bad credit bridging loan may be just the lifeline you’re looking for. With the focus being on your exit strategy rather than your credit history, lenders are more likely to approve a bridging loan with bad credit than a bad credit mortgage.

What is a bad credit bridging loan?

Bad credit bridging loans are short-term loans that are secured against a property or other asset. They’re used to bridge the gap between two transactions. For example, you may be selling your existing property in Pimlico and need funds to buy a new one in the meantime.

Adverse credit bridging loans are quick to arrange, give you fast access to funds and are flexible in their use. You can use a bad credit bridging loan to fund a renovation project, for example, to buy property at auction, to overcome a cash flow issue in your business and much more. You’ll pay a higher interest rate when taking out a bad credit bridging loan than with a standard one. This is to compensate the lender for the additional risk.

What credit issues are accepted by bridging loan lenders?

The credit issues accepted by bridging loan lenders vary. Some lenders won’t consider bridging loans for bad credit at all while others specialise in this niche form of lending. Generally, the following bad credit issues are accepted:

  • A low credit score
  • A lack of credit history
  • Late and defaulted payments
  • County court judgments (CCJs)
  • Accepting an individual voluntary arrangement (IVA)
  • Entering into a debt management plan (DMP)
  • The use of payday loans
  • Bankruptcy
  • Repossessions

Regardless of the bad credit issue, you still need to meet your lender’s criteria, which includes having a strong exit strategy.

Is it easier to get a bridging loan than a mortgage with bad credit?

Whereas mortgage lenders focus on your income and credit history to ensure that you can repay the loan, bridging loan lenders concentrate on the security you’ve provided and your exit strategy. This is the method you’ll use to repay their loan. You can apply for mortgages with bad credit via specialist lenders but poor credit bridging loans are an alternative worth considering.

There are various reasons why arranging a bad credit bridging loan can be easier than arranging a mortgage. For a start, bridging loans are a type of short-term finance and are usually taken out for up to 12 months. This considerably reduces the risk for lenders compared with a typical mortgage term of 25 years before they’re fully repaid.

Secondly, a charge is placed on your property. As the term for bridging loans is short, this doesn’t pose too much of a risk for a lender. The value of your property is unlikely to change that much in such a short period. Over the length of a mortgage term, however, the value of your property may drop drastically. This means it may be worth a lot less than the outstanding mortgage balance.

Does a credit check have to be carried out?

Yes, all lenders carry out credit checks for bridging loan applications as with any other financial application. However, an adverse credit history isn’t focused on in the same way as it would be by a mortgage lender. As mentioned above, bridging loan lenders have a more flexible approach to their lending. They take other factors into account when assessing your suitability for a bridging loan with bad credit. These include:

  • The security you offer
  • The size of your deposit
  • Your exit strategy
  • Your experience in property development, if applicable
  • The feasibility of your business plan, if relevant

Increase your chances of securing a bridging loan with bad credit

Speak with one of our mortgage and protection brokers when you’re ready to apply for a bad credit bridging loan. They know which lenders to approach for applicants with bad credit and will tailor your application to the right one.

They can also advise you on ways to improve your chances of having a successful application. These can include paying a bigger deposit or offering security that’s higher in value than the loan amount, ensuring that your proposal is feasible and having a strong exit strategy. If you’re unsure as to whether a bridging loan is the best route to take, they’ll discuss the alternatives with you. Just give us a call on 01322 907 000 and one of our expert advisers will be happy to help you with your bad credit bridging loan requirements.