Does being self-employed affect your chances of securing a bridging loan?

Is it better to buy a new build or an older property?

With a rising percentage of the UK workforce being self-employed, lenders ensure that their need for flexible funding is catered to. If you’re looking for a short-term loan, a self-employed bridging loan can help to bridge the gap in your finances. The lending criteria aren’t as strict for bridging finance as they are for other forms of funding. This means that being self-employed won’t prevent you from securing a bridging loan.

What can you use a self-employed bridging loan for?

A bridging loan is quick to arrange and gives you fast access to funds on a short-term basis. This type of finance can be used in various ways when you’re self-employed, which include:

  • Covering temporary cash flow issues in your business
  • Buying a property at auction while your self-employed mortgage is being processed
  • Completing a property purchase quickly so that you’re not stuck in a chain
  • Buying equipment or stock for your business
  • Refurbishing a property
  • Buying business premises

What can be used as security for a self-employed bridging loan?

If you’re using the bridging loan to buy a property, you can use the property as security for the loan. Alternatively, your home can be used as security if you’re already a homeowner. You can also use your business assets, such as property, equipment or equity.

Are you eligible for a self-employed bridging loan?

You can apply for a self-employed bridging loan as an individual or a company. You can be a sole trader, in a partnership or a limited company director. The bridging loan lender will need to see proof of your financial status. This means that you’ll need to provide 2 years of business accounts although some lenders will accept them for just 1 year. If you have a start-up company, some lenders will accept less than a year of business accounts. You may also need to provide the lender with copies of your bank statements.

Bridging loans have more flexible assessment criteria than mortgages. Whilst your financial status will be checked, the bridging loan lender will focus more on your exit strategy. This is how you intend to repay the loan. For example, you may want to attend an auction to buy a cheap property in Bexleyheath that needs work. Once the work has been completed, you can sell the property for profit and repay the loan from the proceeds.

Bridging loan interest rates and fees

The cost of your self-employed bridging loan depends on various factors. These include the amount you want to borrow, the security you’re providing, the loan term and the purpose of the loan. As such, the bridging loan interest rate will be determined on an individual basis. As bridging loans are available for a short term, the interest rate is charged on a monthly basis rather than an annual one. You can either pay the interest monthly or have it rolled up, which means it will be added to the loan amount. If you choose the latter, you’ll repay all of the interest when you repay the loan.

As well as paying interest, there are other bridging loan costs to consider. The fees charged depend on the lender as well as your circumstances. They can include:

  • An arrangement or facility fee
  • An administration fee
  • A valuation fee
  • Legal costs
  • An exit fee

Can you get a self-employed bridging loan with bad credit?

Having a bad credit history shouldn’t stop you from being approved for a self-employed bridging loan. When you’re self-employed, you may often be in a position where you need to juggle your finances and have to pay some of your bills after they’re due. This can lower your credit score as can having other debts.

Bridging loan lenders, however, don’t put as much focus on credit reports in the same way that mortgage lenders do. This is because they’re more concerned with your asset’s value and how strong your exit strategy is.

If you have a bad credit history, a non-status bridging loan allows for this. This type of bridging loan is also an option if you have no proof of income.

Get fast access to funds with a self-employed bridging loan

When you need access to additional funds, your self-employed status can sometimes get in the way. With a self-employed bridging loan, however, your application can be approved quickly and you’ll benefit from a fast turnaround. Our brokers – located throughout Kent, London and Edinburgh – are ready to discuss your circumstances and bridging loan requirements. They can also advise you on the alternatives to bridging loans, such as self-employed mortgages. Just give us a call on 01322 907 000 to discover the funding options available to you.