Securing fast bridging finance can be a game-changer, especially when you’re racing against the clock. Whether you’re trying to purchase a new property, cover a temporary cash flow gap, or pay off an unexpected expense, bridging finance offers a short-term solution.
However, before any lender offers you the funds, you’ll first need to get an Agreement in Principle (AiP).
But what exactly is an AiP, and why is it so crucial when it comes to securing bridging finance? Let’s break it down.
What Is an Agreement in Principle?
An Agreement in Principle (AiP) is essentially a document that outlines a lender’s willingness to provide a loan, subject to certain conditions. Think of it as a tentative thumbs-up from a lender, showing that they’re willing to move forward based on the initial information you’ve given.
However, an AiP doesn’t mean you’re guaranteed the loan. Stephen Clark, founder of bridging loan broker Finbri, clarifies “An Agreement in Principle (AiP) is not legally binding, meaning lenders are not obligated to provide the outlined funds. The AiP reflects terms based on the information provided by the borrower but you need to bear in mind that the loan still needs to be underwritten before loan approval.”
In other words, it’s like getting pre-approved for a loan – it’s a positive sign, but there are still a few more hoops to jump through before the money hits your account.
Why Is an AiP So Important?
So, why bother with an AiP if it’s not legally binding? The answer is simple: speed and confidence.
- Speed – Having an AiP in hand shows sellers or other interested parties that you’re serious and have taken steps to secure finance. This can be particularly crucial in fast-paced property markets where time is of the essence. In some cases, an AiP can even help you move ahead of other buyers who haven’t secured one.
- Confidence – It gives you peace of mind knowing that a lender has reviewed your application and is willing to offer terms. While it’s not a guarantee, it’s a significant step toward locking in the finance you need.
How Does an AiP Work?
The process of securing an Agreement in Principle is relatively straightforward, but it’s essential to ensure that all your information is accurate and up-to-date. Here’s how the typical process works:
- Provide Initial Information – The lender will request details about your income, debts, and assets. You’ll also need to share information about the property or purpose for which you’re seeking finance.
- Credit Check – Lenders will usually run a credit check to assess your financial stability and ability to repay the loan.
- Receive Your AiP – If everything checks out, the lender will issue an AiP, outlining the terms they’re willing to offer, such as loan amount, interest rate, and repayment period. Remember, these terms aren’t set in stone.
It’s important to note that your AiP is usually valid for a set period, often around 30 to 90 days. If you haven’t completed the full loan process within that time, you may need to reapply.
What Comes Next After an AiP?
Once you’ve secured an AiP, the next step is underwriting. This is where the lender digs deeper into your finances and verifies all the information you provided. The underwriter may request additional documentation, such as proof of income or property valuations.
This stage can sometimes feel like the longest part of the process, but it’s essential. While an AiP gives you a good indication of what you might receive, underwriting is where the final loan offer is determined.
Common Mistakes to Avoid with an AiP
While getting an AiP is generally a smooth process, there are a few pitfalls that can trip you up if you’re not careful:
Providing Inaccurate Information
Any discrepancies between the information you provide for the AiP and the underwriting process can cause delays or even lead to rejection. Be upfront and honest about your financial situation from the start.
Assuming an AiP Guarantees Approval
It’s tempting to think that once you’ve got an AiP, you’re home free, but as Stephen Clark explains, “the loan still needs to be underwritten before loan approval.” Make sure you’re aware of the remaining steps.
Letting Your AiP Expire
An AiP isn’t valid forever. If you wait too long to move forward with the process, you may find that your AiP has expired, and you’ll have to start over.
How to Make the Most of Your AiP
While the AiP is an essential step, there are ways to use it to your advantage:
- Negotiate with Confidence – Having an AiP allows you to negotiate more assertively. Sellers will take your offer more seriously, and you’ll have the confidence of knowing you’re in a strong financial position.
- Move Quickly – Once you have your AiP, don’t delay. Markets can move fast, and having everything lined up ensures you can act when the right opportunity presents itself.
- Communicate with Your Lender – Stay in touch with your lender throughout the process. If you’re uncertain about any part of the underwriting stage, ask questions. Open communication can help avoid delays or misunderstandings.
Final Thoughts on Securing Bridging Finance
An Agreement in Principle is a key step toward securing fast bridging finance, but it’s just that – a step. It provides a solid foundation for your loan application and allows you to move forward with greater confidence. But remember, the process doesn’t end there.
From providing accurate information to staying proactive during the underwriting process, you play an active role in securing the finance you need. By using the AiP effectively, you’ll be well on your way to getting the funds necessary to bridge that all-important financial gap.