The changes in the economy that have affected the financial market in the last year are limiting the scope for secured loans and private mortgages.
This means that brokers need to be able to address the commercial sector more thoroughly and have the flexibility to deal with a wide range of requests as people are forced to be more creative with their investments.
The rollercoaster ride that was the financial industry in 2007 has brought some stern choices to everyone in the industry – particularly small and medium-sized finance brokers.
Those that have relied primarily on secured loans and private mortgages – the hardest hit forms of credit, because of the tightening of consumer lending and credit problems facing many existing clients – are finding revenue streams weakening.
One-off clients and those requiring ‘non-urgent’ credit are holding back; while those with credit outstanding are increasingly finding loan repayments harder to meet.
That is the situation, but what can be done to resolve it? Many brokers realise that in order to keep their own businesses in a stable position they need to diversify. They need to be able to balance the interests of their business with the needs of their clients.
This involves two actions. The first is to look to the commercial sector, where lending will continue and there are additional revenue streams available. The second is to move towards some niche forms of finance – bridging loans, for example, are less affected by the credit crunch.
Heightened responsibility has to be at the top of the agenda as far as lending is concerned, but there are many potential borrowers who have the means to repay the loans.
Turning to niche lending
Bridging loans – as well as several other niche lending options – have felt the effects of the credit crunch to a far lesser extent than some other forms of finance. This is especially true in the commercial sector.
One of the reasons for this is that the bridging industry requires much more comprehensive and viable exit strategies from the short-term loans.
Maximum terms tend to be 12 months, so there has to be a very clear path to repayment that can be realised very quickly. This creates a little more security for the lender, and the broker that arranges the short-term finance.
As consumer demand for secured loans and mortgages slows, brokers need to move towards these types of services, at least in the short-term. Bridging loans will enable them to maintain their revenue streams and keep their own organisation running with as much of a ‘business as usual’ approach as possible. It also provides a useful service for valued clients.
Adding to your portfolio
Bridging loans do have distinct and sustainable benefits as well as providing a stop-gap solution. They can be arranged with very flexible terms, so that the broker can benefit as well as his or her client.
Repayments can be organised so that they fit in with a wide range of requirements – including those of the exit strategy. They are also flexible in their application – they can be made available for a wide range of purposes.
Whether a home owner is looking to purchase a former industrial building with the intention of converting it for residential purposes, or for increasingly creative uses, bridging loans can help.
These ventures require funding from a broker who has flexible financing options – which is exactly what bridging loans can ensure. It becomes a win-win situation as not only is a new revenue stream secured, but it is one that can address a range of client needs.
In addition to projects with a unique appeal, there are more and more instances now where home owners and businesses alike need quick solutions to short-term problems.
Whether a home owner is looking to remortgage and meet high repayments until the long-term loan is in place, or a business needs to stabilise its cashflow, there will be more clients throughout 2008 needing a ‘quick fix’ for their financial problems.
Bridging loans can provide these rapid financial solutions – that will benefit a broker’s portfolio with the security that the loan has an exit strategy, which makes it a safer investment.
The next move
During the past year, we have seen growing levels of debt, credit tightening and rising house repossessions.
There is the potential for the credit crunch to spell trouble for many businesses and home owners in the UK, but there are steps that can easily be taken to make that ride easier.
Businesses and private investors will need their brokers to offer solutions that support their plans to survive a restricted economy – however short-term the problems may be.
There are a growing number of bridging loans providers in the UK. Some have been around for more than 25 years, and have seen circumstances like this before.
These organisations offer more options than many brokers may be aware of, and the expertise that exists in niche finance sectors such as bridging loans, could be the answer to some difficult questions. m
During 2008 Bridgingloans.com will be hosting a series of seminars around the country to help brokers and IFAs learn more about how they can integrate more short-term finance into their portfolios and make it work for their clients.
For more information on these events, please visit www.bridgingloans.com.