Bridging finance, also referred to as “bridge loans” and “bridging loans”, have nothing at all to do with re-constructing the London Bridge. Bridging finance is typically a short-term loan that a business uses to supply cash for a real estate transaction until permanent financing can be arranged. The word “bridge” conveys the fact that the loan is designed to get you over a temporary obstacle.
A typical use for a bridge loan is to cover situations such as when a company needs to close on a new office building before having sold their old one. They would use the proceeds of the bridge loan to continue making payments on the old building until it is sold.
Bridging finance almost always requires that you pledge some sort of collateralas security against the loan. You could offer up commercial or private real estate that you own,or are in the process of buying, machinery and office equipment or even existing inventory. If you have outstanding business and personal credit, as well as an outstanding relationship with your lender, you might be able to secure your bridge loans on just a signature.
Because the need for bridging finance sometimes arises suddenly and without warning, it is a good idea to establish a relationship with a lender before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan limit. Later, when the need suddenly arises, you won’t have to wade through all of the red tape. The typical term for a bridge loan runs from a fortnight to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to match your needs.
Since bridging finance usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan. Lenders make their profit by charging interest across the life of the loan. The shorter the loan period the less interest they earn. As a result many lenders will often boost the rate by a 1/2 point or more. In general, the length of the loan, the amount of risk that is present for the lender, the quality of your credit history and the liquidity and value of your collateral all are used to help determine the interest rate.
Your best bet for securing a bridge loan at the most favourable rates and terms is to work with a qualified UK Commercial Mortgage Broker who understands the ins and outs of bridge loans. That way you can get your application in front of as many lenders as possible and end up with several who are willing to compete for your business.
Archive for May, 2008
Understanding UK Bridging Finance
Wednesday, May 21st, 2008QROPS – 5 Minute Guide
Thursday, May 8th, 2008
Sometimes reading about financial services can be the last thing your want to do – even if it relates to your own pocket. So to keep things simple, here is a potted guide to QROPS, giving you a brief introduction to the types of schemes that are available and some pointers about what you should be asking your QROPS adviser.
What are QROPS?
A QROPS is a Qualifying Recognised Overseas Pension Scheme which has been approved by the government for the transfer of UK pensions. They were introduced in 2006 as part of the Pension Simplification initiative, although it could be argued that the rules and regulations that govern them are anything but simple. The schemes that the government has approved are regulated and taxed as pensions by the countries that host them. Well over a thousand schemes have been introduced, from a range of countries and financial institutions around the world.
Can you forget about the taxman with a QROPS?
Not entirely. For the first five years after you leave the UK, your QROPS will report back to HMRC the activities that your QROPS does. After that time, Her Majesty’s Revenue and Customs have no right to receive information about your overseas pension fund. If you return to live in the first five years following the transfer of your fund to a QROPS, you could be liable for a tax bill.
However, even if you stay outside of the UK for that five year period or longer, you will still have to consider overseas taxes. So whilst you can forget about the British taxman, there is a potential tax liability for the country where your QROPS is based and where you are living, if the two countries are different.
Where can you get one?
If you look at the HMRC’s list, many QROPS are run by household names that you will easily recognise. But selecting a QROPS is not something that should be undertaken alone. The consequences of investing your fund in a QROPS that has not been officially approved could be catastrophic. HMRC can impose an enormous penalty and claim the tax that should have been due.
In any event, many reputable funds do not accept applications from investors who are not represented by an adviser. QROPS advisers work on either a commission basis (where the QROPS provider pays them when they receive business that has been referred), or on the basis of an hourly fee.
A QROPS adviser should perform an assessment of your requirements and current financial situation and be able to recommend some suitable schemes on the basis of this information. Should you decide to pursue the QROPS route, your adviser should be able to get everything organised for you.
How much will a QROPS cost me?
The straightforward answer is as much as you are willing to pay. Even if the services of your QROPS adviser are free, the bank or other organisation that runs the QROPS will charge a fee. Some base their charges on a set percentage of your fund’s value per year and others work on a fixed fee basis. There are a few schemes that charge as little as ?500 per annum, but others may be more depending on the level of service that you require.
If you choose a large firm of QROPS advisers to represent you, their bargaining power should yield good results – they should be able to negotiate a significant discount.
What does a QROPS mean long term?
You should only consider a QROPS if you plan to leave the United Kingdom for five years or more. The danger of returning sooner is that HMRC’s antennae pick up on your pension pot and want to tax it again. Of course, your plans may change for a variety of circumstances, so it may be best to seek advice before coming back home so that your financial situation can be managed as best as possible.
Moving abroad is such a big life change that it prompts people to take stock of what they have, and what they want to do with it. Accordingly, getting a QROPS should be a time for inheritance tax planning so that you can ensure that your beneficiaries receive the residue of your pension pot without donating any of it to the taxman.
Do you have to be British to get a QROPS?
No, but you do have to be a member of a UK pension scheme and intend to leave the UK for at least five years. Theoretically anyone can get a QROPS, although US citizens should seek detailed advice as their inland revenue services are not keen on the scheme.
