Many of the lenders touting risk-free interest rates are from lenders that are essentially old-school 'tick-box' lenders, and they can take many weeks - if not months - to put a deal together. At the end of the day, its bridging finance. This means it should be short term funding, but importantly, funding that is also provided quickly.
At Montello, our motto is that if a deal isn't done within 2 weeks, then its not bridging finance.
A year or two ago it seemed that the bridging finance market was becoming relatively crowded. There have been a couple of very large players blow up or leave the market, but there have also been some good new entrants. However, as competition has increased, many lenders have struggled to differentiate their offering.
In bridging finance this creates a difficult situation, because once a broker or a borrower has had a good experience with a lender, it is often difficult to get them to change to a different lender. For a new entrant to gain market share, generally speaking, they need to gain business from other lenders.
The answer for some lenders has been to resort to trying to compete on price. However, with bridging finance, there are two things that should be of paramount concern above all else for a borrower. The first is certainty of funding; knowing that you are dealing with a lender that is a legitimate principal lender. The second, and equally as important a consideration, should be the lender's ability to perform quickly.
Interest rate should be a consideration. However, if a borrower is prepared to go with an alternative lender to save 0.005 on an interest rate - or whatever it may be - then you really need to ask yourself whether the borrower should be taking bridging finance. If there is so little profit in the deal, that the borrower needs to be that rate conscious, then perhaps the deals is not that commercially sound in the first place.
Of course, if you can get the same product for a cheaper rate, then a borrower should go for it. However, this is simply not the case. If its a ridiculously cheap interest rate, then it is highly likely that the deal is going to take a long time to put together. Its as simple as that. Lenders offering these rates have to de-risk the deal internally by complying with extensive due diligence and underwriting. This takes time, and often leads to a deal falling over many weeks into the process.
If a borrower is in need of bridging finance, and it takes more than 2 weeks for the deal to be done, then you need to ask the following question: Is it cheap bridging finance? or, is it actually just expensive buy-to-let finance?
