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Bridging Finance for Businesses

Bridging Finance is a relatively new form of financing in which you can “bridge” the gap between borrowing money and paying off the loan.

For business-specific loans, a bridging loan can be a great option to cease an opportunity or grow a business during an interesting time. The loan will always be secured against a property, such as your office premises or commercial building and the provider will usually be a private lender and not a bank, giving you more flexibility on rates and terms and more open to different credit histories and backgrounds.

Why use bridging finance for business?

Typically, bridging finance is used in property-related developments to help developers purchase or renovate properties, both residential and commercial. These types of investments usually require a large lump sum payment up front. Bridging loans can help initiate these projects by getting the funds quicker than a traditional lender.

Businesses can use this type of financing, instead of a commercial mortgage, with more flexible lending criteria. After that, they can seek more traditional, long-term financing. Bridging finance is only ever used for short-term purposes and there is always a clear exit strategy before agreeing to the terms. Before securing the loan, it is the responsibility of the business owner to present a detailed repayment plan.

Is bridging finance the right decision?

Bridging loans operate on different terms from other loans. They are usually for short-term means and fund specific projects. One of their key differentiators is the speed in which funds can be accessed, typically within around 2 to 4 weeks.

If you have a specific business project in mind, with a clear repayment strategy and exit plan, bridging loans can be a great option. Regular term loans may be a better option for more general commercial projects where time-frame is not such a factor.

Using bridging becomes a little complicated when you are struggling to exit and maybe your plans are not going as scheduled. If you struggle to repay your loan and are in arrears, the lender may repossess your property to cover their losses. So it is more likely that you will refinance the loan under less favourable terms – in which case bridging becomes expensive.

Other costs to consider

Further costs associated with bridging may include broker fees, solicitor fees, valuation fees and other admin fees. If you wish to repay your loan early, this may come with an early repayment fee and of course late fees if you cannot keep up with repayments on time.

Costs will vary between lenders and it is always important to check the terms and conditions of your loan before proceeding.

Written by Startup News

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