Independent legal advice for a bridging loan: a checklist

Who needs independent legal advice

A bridging loan is a short-term loan secured on property, usually for 1 to 24 months. Lenders typically ask for independent legal advice from:

• directors or shareholders giving a personal guarantee for a company borrower
• anyone offering their property as extra security for someone else’s loan (a third-party legal charge)
• adults living in a property being charged, who must sign an occupier’s consent
• sometimes the borrowers themselves, depending on the lender and the loan

Checklist: what to understand before you sign

1. The exit strategy

Bridging lenders lend on the basis of a plan to repay: selling a property, refinancing onto a longer-term mortgage, or finishing a development. Ask what happens if the sale takes longer, the refinance is refused, or values fall. This is where most bridging problems start.

2. The term and what happens at the end

Check the end date and whether extensions are possible, and at what cost. If the loan isn’t repaid on time, the lender can usually charge default interest and take steps to sell the security.

3. Interest, fees and default rates

Interest is often charged monthly, and may be “retained” (deducted from the loan upfront) or “rolled up” (added to the debt). Look at arrangement and exit fees, and especially the default interest rate, which can be much higher than the normal rate.

4. What security is being given

List every property being charged and whether each is a first or second charge. Check whether your own home is included. If it is, and you’re not the borrower, make sure you understand that it could be sold to repay someone else’s loan.

5. The guarantee terms

Is the guarantee limited to this loan, or does it cover all money the borrower owes the lender? Is there a cap? Is it joint and several with other guarantors? See the risks of signing a personal guarantee.

6. Regulated or unregulated

Bridging loans secured on a home that the borrower or their family lives in, or will live in, may be regulated by the Financial Conduct Authority, which brings extra protections. Most business and investment bridging is unregulated. Your broker should tell you which applies.

Documents you’ll usually need

• the facility letter or loan agreement
• the personal guarantee and any legal charges or debentures
• the lender’s ILA certificate template and any instructions to the solicitor
• photo ID and proof of address for each person being advised

Timing

Bridging often completes in days, so ILA is frequently the last thing holding up completion. Book as soon as you have the documents. We can often see you the same day and send the certificate straight to the lender’s solicitors. See ILA for bridging and development finance.