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A little about bridging finance – bridging finance for farm

Mark Bracegirdle FCCA FMAAT

Published in Farmer Trader
Issues 130, 135
Feb – June 2007

Used properly bridging finance is the right tool for number of situations e.g.:-
1) A property to buy with another to sell
2) Where these is commitment to buy, for example, at an auction.
3) Where a lender withdraws its offer at short notice
4) Where a property being purchased is in too poor a condition for a long term lender until refurbished.
5) For development.

With many farms now diversifying it is development and refurbishment that might be of interest. Good bridging lenders have the expertise to work with their borrowers in assessing how much is needed for a project, including the replacement of existing loans and additional sums required for the new build or refurbishment. An overall facility will be arranged based upon the value of the property after the development has been completed. However, the lender will not allow, unless the current property value will accommodate it, a draw down of all the funds on day one. An initial sum will be drawn down, usually to replace other loans and to enable part of the work to be completed. When this has been done, usually against architect or other professional supervision and certification, a further amount can then be drawn to complete the next stage and so on until a final certificate is issued. Once this stage is reached it will then be possible to look to refinance the property over the longer term or sell part or all of the property hopefully to make a profit.

Readers may notice that the lender only allows drawings against initial value and further value as the work goes on. This benefits the borrower, since interest is not charged on money not drawn down.

The key to a successful project is to adopt a professional approach. Ensure your project is properly supervised by a qualified architect or other similar professional. They will issue a certificate at the end of the work which says to anyone granting a longer term loan or a buyer’s solicitor (or mortgagee) that the work has been carried out to the right standard and is guaranteed. Make sure that the Building Control Department of your local authority regularly inspects and issues a final certificate as well. The use of a professional can mean that he or she can deal with the project throughout from the planning application to preparing a detailed schedule of specification, obtaining tenders from builders, negotiating a contract with them, liaising with building control and supervising the project to the issue of a final certificate of completion.

This will cost a few bob but then you’ll end up with a development that is properly constructed at the right price, is warranted to be so and is readily mortgageable or marketable. There are alternative warranties such as NHBC certificates but the inclusion of a professional ensures that project costs do not spiral out of control.

Getting the right lender is also a prime consideration.

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