Cash flow is key in keeping a business afloat and making sure it can run efficiently. However, there will be times when your outgoings exceed your incomings. Having access to sufficient funds in a short space of time is essential and applying for a bridging loan could be an appropriate solution.
A bridging loan is a form of short term finance which essentially ‘bridges the gap’ between requiring funds and purchasing. People often seek refuge through this type of loan when under time constraints. Due to its short term form of financing, the loans tend to last for a maximum of 2 years.
How can a bridging loan be used for your business?
Bridging finance can be extremely efficient and useful for business. It’s most commonly used within real estate as purchases are usually worth substantial amounts of money. The main reasons for acquiring this type of funding would be to purchase property or to invest in renovation or refurbishment. This can be beneficial if you’re looking to add further value to your property portfolio.
It’s worth noting, that as part of the loan process, the property you intend to purchase will be used as collateral in the agreement. Nevertheless, the investment you make in a property can help to establish your brand if you’re looking to make it a sustainable success.
What are the advantages?
A Bridging Loan is a viable option for a business, they can have many benefits for business owners that are looking to raise capital quickly. These benefits include:
– Opening a gate of opportunity within the property/business sector
– Providing access to a large sum of money in a short space of time
– The criteria required for approval is often relatively simplistic, making it easier to acquire a loan
– There’s a range of products to choose from within the bridging finance remit
– There are alternative methods of repayment that can be tailored to suit your business
Bridging loans equal large sums of money
One of the biggest advantages of taking out a loan of this type is the ability to receive large sums of money. In some cases, the loan could cover over 80% of whatever you’re trying to subside as part of the agreement. A bridging loan is based on a percentage of the total amount required by the borrower, rather than a fixed amount. This means there’s no restriction on the maximum amount that you could borrow. However, lending tends to start at around $10,000.
There’s a range of financing to choose from
Another added benefit is that there are different options that can better cater to your situation. Depending on how much you can afford and the structure behind your repayments, you’ll have access to either a closed or an open bridge loan:
Closed bridge – this provides you with the opportunity to repay the loan fully by a set date, even if this is beyond a 12 month period.
Open bridge – this provides you with the flexibility to repay the borrowed funds when you’re ready. Although, there will be a cut-off period that lenders may induce to give you an indication of how long they’re willing to wait.
A bridging loan is a lump sum
If you’re requiring a lump sum instantaneously, there are plenty of business finance products available. They’ll provide you with funds that can cover up to 80% of the expenditure you require. Be sure to shop around to make sure that you choose the right lending option for you.
Jamie Costello is an experienced business and finance writer based in Manchester, UK. His educational background revolves around business & financial management in the UK. When he’s not studying he regularly enjoys cycling and watching sport.