Bridging Finance Uncovered: The Crucial Difference Between Gross and Net Loan Amounts
Bridging loans are a vital tool for property developers and investors in the UK, providing short-term finance to secure opportunities quickly. However, one of the most common areas of confusion—especially for those new to bridging finance—is understanding the difference between the gross loan amount and the net loan amount.
This distinction is crucial because it determines how much money you actually receive and what you need to budget for your project. In this in-depth guide, we’ll break down these terms in a simple and clear way, ensuring you’re fully prepared when securing your next bridging loan.
What is the Gross Loan Amount?
The gross loan amount is the total amount that a lender agrees to provide before any deductions. It is the headline figure in your loan agreement and the maximum sum the lender commits to, but it does not reflect the actual amount you will receive.
What is Included in the Gross Loan Amount?
The gross loan amount includes:
- The Net Loan Amount – The actual funds disbursed to you.
- Retained Interest – Many bridging loans deduct interest upfront for the agreed loan term.
- Lender Arrangement Fees – Typically 1-2% of the gross loan.
- Broker Fees – If you use a broker, their commission may be deducted.
- Exit Fees – Some lenders charge a fee when repaying the loan.
- Additional Costs – Legal fees, valuation fees, and other administrative charges.
What is the Net Loan Amount?
The net loan amount is the actual sum you receive after deductions. This is the real figure you can use for your property purchase, refurbishment, or development project.
Since lenders retain interest and deduct fees, the net loan amount is always lower than the gross loan amount. Understanding this is key to avoiding financial shortfalls.
Example of Gross vs. Net Loan Calculation
Let’s say you secure a bridging loan with the following terms:
- Gross Loan Amount: £500,000
- Interest (retained for 12 months at 0.75% per month): £45,000
- Lender Arrangement Fee (2%): £10,000
- Valuation & Legal Fees: £5,000
Net Loan Amount (Actual Funds Received): £500,000 – £45,000 – £10,000 – £5,000 = £440,000
Even though your loan agreement states £500,000, you will only receive £440,000. This is why it’s essential to focus on the net amount when budgeting for your project.
Why is This Important for Property Developers and Investors?
Many developers and investors mistakenly assume they will receive the full gross loan amount. However, failing to account for deductions can lead to funding shortfalls and project delays.
Key Takeaways:
- Always clarify with your lender or broker what deductions will be made.
- Base your project budget on the net loan amount, not the gross figure.
- Ensure you have additional funds to cover any shortfalls.
How to Maximise the Loan Amount You Receive
To increase the net loan amount you receive:
- Negotiate lower interest rates – A lower rate means less interest deducted upfront.
- Opt for the shortest loan term necessary – A shorter term reduces retained interest.
- Compare lenders – Some have lower fees, which can increase the net amount.
- Work with an experienced broker – A specialist broker can help you secure better terms.
- Consider a higher loan-to-value (LTV) ratio – Some lenders offer higher LTVs, increasing the funds you receive.
Final Thoughts
Understanding the difference between gross and net loan amounts can prevent costly mistakes and ensure your property project runs smoothly. Bridging finance is a powerful tool, but knowing exactly how much money you’ll receive is essential for success.
If you’re unsure about the best loan structure for your next investment, contact our expert team at Sunrise Commercial Finance. We specialise in securing tailored bridging loans that meet your needs, ensuring you have the right funds at the right time.
For more information contact us for a fees free chat.
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