Part of the bridging loan market is obtaining an Agreement In Principle (AiP). In this guide, we discuss what an AiP is, what it means & why it matters.
Making a large purchase as a business often means a complex, time-consuming application process. Unfortunately, it’s an unavoidable process because most businesses live or die based on their ability to obtain credit.
According to QuickBooks, 57% of the UK’s small business community has cash flow issues, illustrating how significant the issue is. Bridging loans are highly prized for providing a temporary cash flow boost while more sustainable options become available. Part of the bridging loan market is obtaining an Agreement In Principle (AiP).
In this guide, we discuss what an AiP is, what it means and why it matters.
What is a Bridging Loan Agreement in Principle?
An Agreement in Principle is a document borrowers can use to gauge how much credit they can receive from a lender. In terms of bridging loans, this document can tell you how much a lender is willing to offer based on the personal and financial information provided at the earliest stages.
Although this isn’t a legally binding document, and your AiP can change if your circumstances change, it’s something that dramatically speeds up the application process. Bridging loans can be approved in a few weeks, but an AiP can be obtained in as little as a day, and this is why these loans can be approved so quickly.
What information is needed to get an Agreement in Principle for a commercial bridging loan?
Like any loan, you’ll need to supply personal and financial information to get an AiP and advance your bridging loan application. The difference is that approval rates with bridging loans are much faster and much higher. In contrast, bank loans have an approval rate of less than 50% on average.
Here’s what you’ll need to provide:
At the AiP stage, you usually won’t need any supporting documentation just yet. However, it goes without saying that you must have this proof in hand before your final application can be approved. Naturally, if you can’t provide proof later in the application process, your AiP can be changed or outright revoked.
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How long does it take to get an Agreement in Principle for a bridging loan?
Getting an AiP is the fastest part of the process. Many lenders understand the need for speed regarding bridging loans, which is why some will approve an AiP within a few hours of submitting your application. Generally, receiving a bridging loan AiP within 24 hours is fast becoming the industry standard.
How long does an Agreement in Principle for a commercial bridging loan last?
The average length of an AiP is 30 to 90 days, depending on the lender you go with. You should be able to find this information on the lender’s website, and it should be provided when your AiP has been approved.
No lender will allow an AiP to last longer than 90 days simply due to the risk associated with excessive time frames. Generally, 90 days is viewed as a reasonable period where property prices and markets won’t change significantly. Still, after this, the lender is taking a risk in allowing your initial AiP to stand.
Can an Agreement in Principle be extended?
AiPs cannot be extended. Your lender will stick to their initial time frame religiously. After it expires, the AiP becomes invalid and can’t be used any further. However, there are no consequences to this happening.
Assuming your circumstances and information stay the same, resubmit your information and get another AiP to reset the clock. Since you’ve already been approved once, there’s no reason you wouldn’t be approved a second time if nothing about your situation has changed.
What happens after you have an Agreement in Principle for a commercial bridging loan?
After getting an AiP, you can apply for your full bridging loan. Feel free to do it immediately or delay your application until any time during the AiP’s validity period.
So, what happens next?
Should you use a broker to get a bridging loan Agreement in Principle?
Using a broker is a no-risk strategy because the broker’s fees are typically paid by the lender. Many think a broker’s role is to file paperwork and deal with the lender to save you time, but this is only a portion of what they do for their clients.
Brokers leverage their network of industry relationships to uncover the best deals on the market, including those not publicly available. You’re unlikely to find the best deals alone, which is why brokers are worth their weight in gold.
Moreover, brokers provide bespoke advice on several aspects of bridging loans, including:
· Maximising your loan amount
· Structuring your loan
· Crafting a successful application
No broker can guarantee that you will get approved for a bridging loan, but their knowledge of how the industry works drastically increases your chances. Ensure you have an expert on your side to increase your chances of getting your AiP and final loan application approved.
At Hilton Smythe, our independent financial advisors can provide objective advice on your bridging loan. With over 35 years of experience, we help you access a wide range of lenders other brokers cannot. To learn more about securing your commercial bridging loan, contact us today.