Short Term Loans (STL) are often known as bridging loans. They are used to cover short term needs for finance and can be used for many different purposes. They are secured, usually on a residential or commercial property.
Why use a short term loan?
The benefits of short term / bridging loans include:
- Finance quickly available
- Periods as short as 1 month
- Periods up to 2 years
- 1st or 2nd charge mortgage
- No ERC’s on certain products
When should investors use a short term loan?
Typical uses of short term and bridging loans include:
- Buying a property at auction
- Refurbishing a residential or business property
- Covering a gap in a broken property purchase chain
- Short term finance for a business
Below is an example of how short-term finance can be used by investors.
Four-week property turnaround from purchase to rental
Loan type: Short term loan converted to BTL mortgage
Loan purpose: Refurbishment works and hold-to-let
The property is in Boothtown, a suburb of Halifax, an area with a strong rental demand due to proximity to good primary and secondary schools. The deal was conducted off-market and the investors first made their offer on the property over a year prior to purchase. The investors agreed to fit in with the owner’s timeline regarding the sale. A completion date was agreed and postponed twice in the eight months leading up to completion and eventually, a firm date was settled on for the end of June 2019.
The purchase was financed through a short-term bridging loan, to be converted to a BTL mortgage once the work was completed and the property tenanted.
The investors carried out light refurbishment work, including installing a Damp Proof Course (DPC) on the ground floor, a new boiler, insulation in the loft bedroom area and a complete redecoration top to bottom with new carpets. From the time of purchase, the investors were able to carry out the works and get a tenant in place within four weeks.
For more details about this case study including cost and ROI calculations, see our blog.