Just imagine, you shake the man’s hand and he says to you, “It was good doing business with you.”

Both of you walk away feeling very satisfied with the deal that you have just done together. You know how much you have to pay; he knows how much he is going to receive.  That is until you are further along in the transaction of course. Suddenly, the other party decides to increase the fees that he is charging you, change the fee structure completely or introduce a fee that was not previously agreed.

“But who on earth would do this in the bridging loan world?” you may rightly ask.

In short, a not-so-scrupulous bridging lender would do this.  Thankfully, there are not too many around these days.  But the reason why a bridging lender can apply fees as they wish, regardless of clear verbal discussions regarding fees or even written term sheets, is simply because they can.  Nothing more, nothing less.

A bridging loan is typically not regulated by the Financial Services Authority (FSA) and this absence of regulation makes it much easier for a bridging lender to ignore the principles of Treating Customers Fairly .  It is an unregulated product, at least with respect to the FSA, and this leaves the borrower applying for the bridging loan exposed to some degree.

It’s true that a solid business does not need to have good business practice forced upon it.  Good businesses tend to have their own internal code of conduct that will determine if they treat customers well or not.  However, a regulatory regime can help if it is well-defined and gives enough flexibility for a business to develop its own personality.  Such a regime can help a business to sharpen its focus by ensuring that a minimum level of quality is always delivered to its clients.

So, if a client receives clear verbal terms that the maximum Arrangement Fee (or “Facility Fee”) will be 1.5%, for example, legal fees will be £675 and the Valuation Fee will be no more than £1,000, then why should the borrower expect anything else?

It is fair to say, in defence of a bridging lender, that borrowers do often conceal information.  Therefore, when the necessary Due Diligence is carried out, aspects of a case can come to light that were not evident before.  However, it is not difficult whatsoever for a bridging loan provider to use this stage in the process as an excuse to insert additional fees or change existing ones.

“You never told us Mr Smith that you were borrowing through an SPV.  So we had to make a whole host of changes.  We will need a further £820 for legal costs from you.”

Clearly, Mr Smith had not planned to spend close to a further one thousand pounds to secure the bridging loan.  But what should he do – pay it or walk away from a, potentially, profitable deal?

Keep all of this firmly at the front of your mind when you are seeking a bridging loan.  Regardless of whether you are dealing with an adviser or directly with a bridging lender, bridging loans are unregulated.  Repeat this to yourself, almost, mantra-like so that you never lose sight of this potential pitfall.  Generally, companies that provide bridging loans are solid businesses, albeit expensive.  But it only takes one lender to ruin your experience of what is an essential part of the loans marketplace.  And be under no illusions, bridging loans are an essential part of the financial market mix.

Present your adviser or lender with a fully disclosed case.  Then if they adhere to good business practice, you will likely be issued terms very early in the process.  They will then stick to these terms which, in turn, will lead to no change in the costs of securing your bridging loan.