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The Chicken or the Egg?

bridging finance Jul 14, 2017

THE QUESTION

I’ve been advised to go out and find deals and the finance will follow. I have found a few suitable projects, done the sums and offered to purchase.  We lost a deal earlier in the year as we failed to finance it and we currently have two deals on the table that are good few weeks down the line and the vendors are starting to get itchy feet (quite understandably).

This has really started to stress me out. The reason for the immense stress was that I was putting my credibility on the line. I was making promises to do something that i had no way of fulfilling.

Now it’s certainly motivating, it makes you take action, but raising finance is not a quick process.  It takes time to build relationships and trust - it’s not something you can fix with 'hustle'.

So, how do people deal with this?  Do I need to change tack and concentrate on getting financial backers on board first and then start looking for deals?

THE ANSWER

This is the perennial dilemma of getting private money to fund your deals.  Deal v cash ... typically when you have one you don’t have the other.

Usually when you find a deal that needs doing quickly, you don’t have someone with private money that is ready to invest right now.  Conversely, when you have built up the trust over multiple coffees, you don’t have a deal ready for them to invest in. When you do find a deal and go back to them to ask for their money now that you have a deal, often they have invested it elsewhere because they didn’t want to wait and something else came along.

Unless you are borrowing the money on a fixed interest basis, you have the additional burden of abiding by the FCA directive PS13/3 requiring you to get proof that you are dealing with a Sophisticated Investor before you are permitted to reveal the specific details of your equity investment deal.  This is a prerequisite for any investor offering a share of the profits (or losses) in return for a cash investment in their deal.

There is a far simpler way to get Other People’s Money in your deal and massively reduce your stress levels – use bridging finance

  • Your loan application is approved quickly, usually in a day or two
  • Your purchase is completed quickly, usually in under 28 days
  • You don’t have to buy a bridger coffee, or dinner, or any other inducement
  • You don’t have to spend months building up their trust before they lend to you. You probably got married quicker than it can take to convince a JV partner to invest in your deal!
  • You don’t have to pander to their ego, to get their money in your deal
  • You don’t have to travel half way round the country to meet up with them – repeatedly
  • It is a loan, so no PS13/3 complications
  • They don’t get cold feet and pull out just before, or even worse just after, you exchange contracts
  • They never want 50% of your profits
  • They don’t poke their nose into how you are managing your project and want a say in what colour paint you are using, for example
  • They don’t get stroppy about what you are doing with their money and want to pull out before the project is finished
  • They don’t suddenly need the money they put into your deal for something else
  • They don’t get emotional about their investment and allow that to influence your relationship with them
  • They don’t want a say in which exit strategy you prefer to use
  • They have deep enough pockets that, if you find another corker of a deal before you have finished the current one, they will fund that too

If one bridger happens not to like your deal, there are always other readily available bridgers who will like it.

 

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