Bridging Loan Finance Glossary
We have compiled an Bridging Loan & Finance Finance Glossary as an information guide
Bridging Loans Finance Glossary
Annual Percentage Rate (APR) – The law requires that banks and other lenders quote the annual percentage rate for their customers. The APR usually appears in brackets and it constitutes the rate used to calculate the customer’s total interest over the entire loan term.
Consumers may see multiple interest rates, including introductory rates, quoted for any particular product including personal loans, mortgage loans and credit cards. The annual percentage rate originated with the Consumer Credit Act of 1974.
Usually the rate that lenders promote for credit products is the monthly or annual interest rate. The APR is usually the highest rate quoted for loans and it represents the total amount the customer will pay over the entire loan term to include any other charges aside from interest.
Applied or Nominal Interest Rate – The applied or nominal interest rate is the amount used by the lender to calculate the borrower’s actual balance. Typically, it may be somewhat less than the annual percentage rate, as it does not include other fees besides the interest rate.
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.
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.
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.
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.