Bridging finance is designed to provide borrowers with a short-term lending solution until they are able to secure an exit, either through refinancing or sale of the property. But what if things don’t go according to plan and the intended exit is no longer possible when the term of the bridging loan expires?

This year, more than any other, has taught us that even the most robust of plans can be blown out of the water through unforeseen circumstances and the with the door slammed shut on potential exit routes. So, what options does a client have?

This is not intended to be an exhaustive list of either reasons or results, but there is no doubt that failing to repay a bridging loan can potentially result in default charges, so if it looks like an exit will not be viable, it’s important to act quickly on behalf of your client. Many lenders may be able to arrange an extension of an existing facility and this is something we’ve seen increasingly offered throughout the COVID-19 pandemic. However, where a lender is unable to offer an extension, or the terms of the extension do not suit your client, you may need to consider a new bridging loan to repay the current facility. This can sometimes be cheaper than an extension with the existing lender, and is known as re-bridging.

Re-bridging is regarded as a greater risk by some lenders as the borrower’s circumstances have already deviated from their initial plans. So, it’s important to understand why they have, or potentially might, exceed the original loan term. Once you have identified the problem you can start to identify the most appropriate solution. If, for example, it is a minor problem and the client will be in a position to repay the loan within a matter of days, then an extension to the original term may be the most suitable option. If, however, it is a more significant delay it is important to understand what needs to be done in order to reach a position where the loan can be repaid, and how long this might take. These considerations may impact your choice of term and which lenders might offer the best option.

For example, say your client has taken a bridging loan to refurbish a property that is currently unmortgageable, with a plan to refinance once the work is complete. There could be a number of possible problems that could impact this scenario. The work could overrun, for example due to bad weather, and may take another couple of months to complete, in which case a short-term re-bridge may be required. Or there may be additional, unforeseen, costs that require the client to refinance to raise extra funds. Or it could be that refinancing on term finance is no longer a possible option and your client requires more time to sell the property. Whatever the reason, it is important that there is a robust explanation as to what caused the situation and why the current, or new, lender can have confidence in the revised exit plan.

And it goes without saying, when it comes to choosing a lender, give yourself and your client extra peace of mind by selecting one that has signed up to the ASTL’s Code of Conduct to embed and ensure best practice. A list of all of our members, including those which are able to offer rebridging, is available on our website.

Vic Jannels, CEO of the ASTL

A version of this article appeared in the November digital edition of Business Moneyfacts