Bridging Loan Finance Glossary

Base Rate – The base rate is the lowest rate at which a specific lender will offer a loan to customers. The base rate, also called the repo rate, acts as the starting point by which lenders set other interest rates. High street lenders track the daily money market actions of the Bank of England to set their own base rates.

Bridge Financing – A type of financing used typically by companies prior to an initial public offering (IPO). Bridge financing serves to cover cash flow requirements over the short term until the IPO allows the company to raise additional capital.

Bridging Loan – A short-term loan usually sought as an alternative when consumers need money quickly to complete a transaction. For example, a bidder at an auction may close a deal using a bridging loan. The loans are also popular when consumers want to buy a real estate property while they are selling an existing property or waiting on a deal for that property to close. The loans typically act as a “bridge” to another loan that will cover most of the financing.

Capital – The term “capital” refers to a certain value of money. The value of capital is separate from any gains made using the money for an investment or from any interest or other charges that you must pay on the money. The term is synonymous with “balance” in the mortgage industry, as it describes the amount of money, excluding interest and other charges, which the borrower still owes on the loan.

Collateral Security — The lender may require that the borrower provide extra security to vouchsafe their intention of repaying the loan. Typically, collateral security is in the form of property deeds.

Cooling off Period – The cooling off period requires that the lender provide consumers with 10 days in which they can reconsider their loan or credit card agreement. If the customer decides to decline the agreement, they must provide the refusal to the lender in writing. If the customer waives the cooling off period right, the agreement is immediately valid. The right originates from the Consumer Credit Act, 1995.

Credit Insurance – With credit insurance, consumers have protection should they become ill or otherwise have difficulty repaying their loans. The insurance covers monthly loan obligations for specific situations and for a specific amount or time period set out in the policy.

Credit Reference Agency – A credit reference agency provides financial histories for consumers in the United Kingdom. The agencies have files on most adults that they glean from various sources. The file data typically includes details on any bankruptcy or court judgment against the consumer. The records will also list loan defaults and late payments.

Lenders use these financial histories to calculate credit scores for potential borrowers. Consumers have the option of examining their files and they can even request them online directly from the credit reference agencies. The agency must send you the file within seven days and they must correct any errors found so long as you send a written request.

Deposit – A borrower will pay a sum of money known as a deposit as the first installment of the payment schedule. The deposit is typically larger than the regular installment payments in order to show that the buyer is capable of handling the financial obligation represented by the loan.

Early Redemption Charge – The lender may require this charge if the borrower redeems or partly redeems certain types of loans within a specified early period. The charge basically acts to cover lenders for some of the interest payments they will lose.

Fixed Interest Rate – Loans with this rate charge the same interest rate over a specific time period. One advantage of fixed interest rate loans is that they provide predictable payments for calculating future budgets. They also allow consumers to lock down low interest rates at the time of purchase since payments will not rise even if interest rates in general should climb.

Funding Gap – An amount of capital required to cover cash flow for a business or other project that does not have sufficient internal resources. Companies and other organizations typically cover funding gaps through loans, venture capital funding, angel investments, equity sales and other financing schemes. Start-up companies often experience funding gaps.

Hard Money Loan – The term refers to a type of loan that consumers turn to as a “last resort.” Unlike traditional loans that rely on the creditworthiness of the borrower, a hard money loan uses property as collateral for the debt. Bridge loans are a type of hard money loan.

Lien – A lien gives the lender the legal right to collect collateral used to secure a debt or other obligation. In mortgage lending, the property itself typically serves as collateral for the loan.

Loan Insurance – An insurance policy that will repay the entire loan should the borrower be unable to do so because of death or other acceptable causes such as loss of a job. Some lenders will require that customers take out such policies to lower their own risk.

Mortgage – A loan secured by real estate property collateral. The borrower typically pays the loan back using a payment schedule with fixed or variable interest rates. The mortgage allows the borrower to buy real estate property without having to pay the entire cost at one time. The mortgage creates a lien or claim for the lender against the purchased real estate.

Second Mortgage – A second mortgage is an additional mortgage loan that utilizes the borrower’s equity in an existing property. Because the lender is taking on greater risk by lending to a borrower with an existing mortgage, the interest rates on second mortgages will usually be higher than first mortgage rates.

Total Charge for Credit – The sum of all payments required of the borrower. The total charge for credit will include the interest payments, capital, insurance costs, fees and other costs. Lenders use this amount to calculate the annual percentage rate for the loan.