Private finance explained: What is it and when could you use it?

Private Finance demystified: What it is and when to consider it?

Sometimes a property opportunity comes along and you need to move quickly.

Perhaps you've found a property that needs work, you're looking to purchase before refinancing, or a traditional lender simply isn't the right fit for the deal.

That's where private finance can come in.

What is private finance?

Private finance is a form of lending provided by private investors rather than traditional high street banks.

It can be used for short-term property finance and may be particularly useful when a conventional mortgage or bank loan doesn't fit the circumstances or timescale of a particular deal.

At Octagon Finance, we connect borrowers with private investors and arrange finance around the individual circumstances of each deal.

When could private finance be useful?

Private finance can be considered for a range of property opportunities.

For example, you might be:

Buying a doer-upper
You've found a property with potential but need funding for the purchase and renovation before selling or refinancing.

Moving quickly on a property
A time-sensitive opportunity may not fit comfortably within the timescale of traditional lending.

Outside traditional lending criteria
Your circumstances or the property itself may mean a high street lender isn't suitable.

Bridging a short-term funding gap
You may have a clear plan for longer-term finance but need short-term funding to get there.

The important thing is having a clear reason for the borrowing and a realistic plan for repaying it.

How does private finance work?

Every private finance deal is different.

The lender will consider factors such as the property, the amount being borrowed, the level of security and the proposed exit strategy.

At Octagon Finance, the process starts with understanding the deal itself. We then help match the opportunity with a suitable private investor and explain the terms clearly.

Octagon Finance says it can often obtain an agreement in principle within 24 hours during working hours, subject to the application and circumstances.

What is an exit strategy?

An exit strategy is simply your plan for repaying the private finance.

For example, you might plan to:

• Sell the property
• Refinance onto a longer-term mortgage
• Refinance once renovation work is complete
• Use another source of funds to repay the loan

Having a clear exit strategy is an important part of considering private finance because it is generally designed as a short-term solution rather than permanent borrowing.

How long can private finance last?

Terms vary depending on the deal, lender and circumstances.

Octagon Finance's current private finance offering states that terms can generally range from six months to five years, with interest either paid monthly or rolled up and paid alongside the capital at discharge.

The right structure will depend on the individual deal.

Is private finance right for you?

Private finance isn't automatically the right answer.

It can be useful where speed, flexibility or circumstances make traditional lending unsuitable, but it is important to understand the interest, fees, repayment structure and exit strategy before proceeding.

That's why personal advice matters.

At Octagon Finance, we'll take the time to understand the opportunity, explain your options and help you work out whether private finance makes sense for your plans.

Have a property opportunity in mind? Let's talk it through.

Private finance is subject to lender criteria, security, eligibility and individual circumstances. This article is for general information only and should not be considered financial advice.