Bridging Finance for Businesses: How Does it Work?
The beauty of bridging finance lies in its flexibility. Unlike most conventional loans, bridging finance can be used for any legal purpose whatsoever. This makes it a particularly useful facility for businesses, which often need short-term ‘gap-filling’ finance for a variety of reasons.
As the name suggests, bridging finance is engineered to ‘bridge’ temporary financial shortfalls. Smaller businesses in particular are prone to occasional cashflow issues, which cannot always be covered with mainstream loans from High Street banks. When time is a factor, most conventional loans and lending facilities are of little to no value.
In which case, what it is about bridging finance that makes it such a popular and versatile solution for businesses? More specifically, how does bridging finance work, and who is it suitable for?
Business Bridging Loans: The Basics
All bridging loans are arranged as bespoke agreements between the issuer and the borrower. Nevertheless, the vast majority of bridging loans share several common features and characteristics, including the following:
- Loans available starting from £50,000 with no upper limits
- A bridging loan can be arranged within a few working days
- Interest applies monthly at rates starting from just 0.5%
- Full loan balance to be repaid within 1 to 18 months
- Funds secured against assets of value, usually residential or commercial property
- Minimal additional borrowing costs and no early exit fees
- Can be used for any legal purpose whatsoever
- Open to applicants with poor credit or a history of bankruptcy
- No proof of income necessary and no deposit payable
Oftentimes, it is the speed and simplicity of bridging finance that appeals most to business borrowers. As the facility can be arranged within just a few working days, it is ideal for taking care of time-critical costs and unexpected outgoings.
Who is Bridging Finance Suitable For?
Bridging finance works in a similar way to a conventional mortgage, only with significantly fewer restrictions. The funds are secured against assets of value in the normal way, but a bridging loan can be secured against almost any assets of value – as deemed eligible by the lender.
In addition, the full loan balance inclusive of all borrowing costs is repaid short-term, in the form of a single lump sum payment.
Consequently, bridging finance is suitable for businesses in need of short-term stopgap funding, with complete confidence in their ability to repay the loan in full by the agreed deadline. As part of the application process, you will be expected to provide full disclosure of your exit strategy – i.e. when and how you intend to repay the funds.
Bridging loans can be a uniquely cost-effective option for short-term borrowing, but should never be taken out with longer-term intent in mind. Monthly interest starting from 0.5% adds up to an unbeatable deal short-term, but can quickly become expensive when loans are not repaid promptly.
For more information on the potential benefits of bridging finance or to discuss your eligibility in more detail, contact a member of the team at UK Property Finance today.