Finance 29 August 2019

Everything you need to know about bridging loans for business owners

British businesses in need of short-term funding for important projects are increasingly turning to bridging loans. Attracted by record-low bridging loan rates and flexible borrowing terms, the popularity of the commercial bridging loan is growing at record pace.

Back in 2011, total annual bridging loan transactions in the UK was believed to have reached approximately £750 million. By 2016, this had increased to more than £4 billion and is still accelerating quickly. Demand for these dynamic short-term loans has been met by an equally fast-growing market of lenders, now populated by numerous independent bridging specialists.

But in what way does the appeal of a bridging loan outstrip more conventional lending options? More importantly, in what instances is a bridging loan preferable to and more affordable than a traditional loan?

How bridging finance works

Bridging finance is a form of ultra-short-term finance, often used to make purchases and meet payment obligations where there are strict deadlines in place. The idea is that you ‘bridge’ a financial gap as quickly and conveniently as possible, subsequently repaying the loan within a matter of months.

Typically, bridging loans are available from as little as £10,000 and often with no upper limits whatsoever. The funds can be made available within a matter of days, irrespective of the loan amount and its intended purpose.  

For example, you could apply to borrow £500,000 at the start of the week to purchase a property at auction, receive the funds by the end of the week and pay for the property outright. After which, the loan is repaid within a few months (rarely more than 36 months) in one lump sum payment or lump sum payments on or before an agreed date. With bridging loan rates starting below 0.5% per month, repaying bridging loans as quickly as possible adds up to outstanding value for money.

Best of all, eligibility can be established primarily (or exclusively) on the basis of collateral. This can be particularly useful for business owners, who have difficulty in proving traditional income but for whom access to appropriate assets isn’t usually an issue. Commercial properties or on occasions even vehicles and valuable assets can be used as collateral to secure a bridging loan. Even with a poor credit history, there’s every chance you could still qualify for bridging finance. 

Popular bridging loan applications for business owners

We’ve established the flexibility and accessibility of bridging loans, but why would you want one? What kind of everyday (or occasional) scenarios could call for this kind of short-term cash injection?

The short answer – any instance where it would be beneficial to raise funds for business purposes as quickly as possible. Of which, there are various examples, including but not limited to the following:

  • Property development: A common application for a business bridging loan is to use it for property development finance. You may be interested in purchasing a property to renovate, in order to sell on at a profit.  Likewise, it could be a buy-to-let property you have in mind, which is available at an unmissable low price because of its poor condition.
  • Office updates: Fast-growing smaller businesses will eventually face the inevitability of updating, upgrading or relocating their offices. Raising the capital to do so in a hurry can be tricky, but not if you apply for a bridging loan. Use bridging finance to purchase bigger premises, run your business at a higher capacity for 12 months and repay the loan as agreed, with minimal overall borrowing costs. 
  • Stock or investment: From time to time, you may come across a stock or investment opportunity that you simply cannot afford to pass up. Rather than allowing it to slip through your fingers, you could use a bridging loan to take full advantage of it.
  • Unexpected outgoings: Last but not least, it’s not uncommon to occasionally find yourself facing a financial shortfall at the worst possible time. Building repairs, replacement equipment, tax bills and so on – all quickly and easily covered with an affordable bridging loan.

Of course, bridging finance isn’t suitable for all purposes and should not be sought without sufficient forethought. Speak to an independent broker such as UK Property Finance to discuss your suitability and eligibility for bridging finance, before submitting an application. 

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