Are Unregulated Bridging Loans Worth The Risk?

Bridging loans can be a beneficial tool for anyone looking for financial help in difficult situations. For many, it’s a way to pay off costs and debts in a short time frame and ease stress. For others, it’s a way to access funds for investments and save time.

Commercial property investors are often tempted into unregulated bridging loans because of the promise of fast cash with fewer restrictions. However, they also come with risk. So, are unregulated loans worth it?

Unregulated Vs. Regulated Bridging Loans

Before we look at the pros and cons of unregulated bridging loans for property investors, we need to look at the difference between unregulated and regulated. Regulated bridging loans are typically the ones providers recommend the most. They are a relatively simple way to get short-term financing for purchasing residential property.

The regulation part refers to the FCA regulation that gives all these loans legal protection. Therefore, all of the unregulated bridging loans don’t have this level of protection. This gives investors a wider pool of resources to choose from, which comes with benefits and disadvantages. These loans are also primarily associated with non-residential properties.

Unregulated Bridging Loans For Property Investors

There are situations where unregulated bridging loans can make a lot of sense for investors. They are a helpful tool for those looking to build a portfolio of investment properties, especially those dealing in commercial real estate. There are several types of loans out there that could work in your favor as a property developer.

While many will turn to commercial bridging loans as a means of securing finance for retail and office spaces, there are also options for land with planning permission. Therefore, if you can get hold of a plot that already has development planning, perhaps for a mixed unit plot with offices and commercial spaces, you can get that faster loan.

On top of this, you can also look into these financing options if you are a limited company or are looking for a second or third-charge bridging loan. The latter applies to businesses dealing with existing properties. The range of options shows why it is so important to discuss your options with an expert in bridging loans.

The Closest Thing To Quick-Fix Solution

Aside from the different options available, there are additional benefits for those who need access to a lot of money in a short amount of time. These loans can provide borrowers with large amounts of money to bridge that gap and get them where they need to be.

These substantial figures can change the fortunes of investors in a very short time frame because the money is available so fast. There is also greater flexibility in the lending criteria, which could speed up the application process further. Therefore, those looking for a quick-fix solution have a better chance of success here than with regulated bridging loans.

The speedier nature of these unregulated bridging loans and the amount borrowed make these solutions highly appealing to investors. There will be plenty that get what they need from one of the services mentioned and prosper from the results.

However, there is no guarantee that this will be a smooth process. There are financial risks when dealing with these unregulated bridging loans.

Problems Paying Back Unregulated Bridging Loans

This is the biggest concern for anyone looking to use an unregulated option rather than a regulated bridging loan. Regulated loans are a lot more rigid in their criteria and terms. While that may not be ideal when it comes to applying for a loan and getting accepted, it does work in other ways.

For a start, you may end up with shorter loan terms, making it harder to handle repayment plans. The fees and interest rates during those terms are also much higher with unregulated loans. Therefore, there is a strong chance of paying a lot more than expected to pay it all off in time.

This issue then leads to delayed payments and arrears. The last thing you want is to get deeper into debt with an unregulated company.

Unregulated Loans And FCA Protections

This is the biggest concern of all for investors. When you go down the unregulated route, you open yourself up to further trouble. You don’t have the FCA on your side to back you up if the fees become unmanageable or the loan provider starts talking about collateral.

You don’t fully know who you are dealing with and the tactics they are willing to use if they aren’t regulated by the FCA. There may be a very good reason why the FCA doesn’t want to associate with them. Unless you are prepared to take your time and compare companies, you will always have that risk clouding the experience.

This is where you have to make a choice. Do you jump into the unknown with an unregulated provider for quick access to money and to secure that investment sooner? Or, do you step back, go with a regulated bridging loan provider, and see the benefits later on?

Are Unregulated Bridging Loans Too Much Trouble?

Most experts will advise investors against the unregulated route because of the risks involved. The worst-case scenario here is that you find yourself struggling to make an investment work while paying off the loan with those high interest rates.

It could become very difficult to manage very quickly. The regulated bridging loan may not be as fast, but you do have those additional protections in place just in case the investment doesn’t go as planned.

Ultimately, you know which approach suits you best. If you’re looking for quick money to bridge the gap on a sure-fire deal, this might be the right route. It all depends on how quickly you will see a return on that investment and be able to pay off the costs.

This is a quick-fix solution that needs an equally quick repayment solution with no room for error. If you can’t be sure of that, don’t take the risk with unregulated loans.