How popular are open-ended bridging products?
I think the market for open-ended bridging products is much smaller than for closed-end loans. We find most clients are looking for short-term loan requirements to ‘bridge’ a specific event which has certain characteristics whereby a backstop date can be identified, or at that point, an alternative strategy is deployed.
Also, we are seeing the short-term financial market offering very flexible closed-end bridges for increasingly longer periods without early redemption penalties. These are often more cost-effective and quite often the best solution instead.
How helpful are they for clients?
In principle, they are very useful, particularly for business owners who may have property assets they will hold long term but with significant equity in them. This equity can be drawn against and deployed within their businesses cost-effectively and often a lot quicker and simpler than might be possible with their bankers.
We found it to be a good solution for a client working in the fashion industry. She wanted to expand further into Europe and her bank was less than useful in assisting with the cost of doing so. The client had a property that we could secure an open-ended facility against. This appealed to her as she was unsure of the ultimate cost of the expansion or how long she would need the lender’s commitment for.
Often open-ended bridges are arranged so that clients can draw against them or pay back as and when they need them. This flexibility is important to some borrowers but there is usually a premium to pay in respect of the cost of funds, and sometimes non-utilisation fees if facilities are not fully drawn. Also, many will have ‘review’ dates and quite often these loans are payable ‘on demand’ so I would question whether many can actually be labelled ‘open-ended’.
Do you expect more lenders to offer them?
I think where lenders have launched open-ended bridge products, the take up has been relatively modest. Coupled with the fact that the industry already offers very flexible closed end bridges at generally lower cost (and increasingly looking to innovate in this area) I don’t think we will see any significant expansion into the open-ended bridge loan space in the near future.