How Could My Small Business Benefit From Bridging Finance?

Traditionally bridging finance has been predominantly associated with larger businesses and established investors, today however the figures suggest smaller businesses are taking out more bridging loans than ever before. Furthermore, these loans can help manage cash flow and other financial problems.

But what is it about bridging finance that makes it such a popular choice among small business owners? Importantly, how do bridging loans differ from more conventional loans for business purposes?

How Does A Bridging Loan Work?

A bridging loan is a secured short-term facility, which can be used for any legal purpose. As with all secured loans, the amount borrowed is secured against one or more assets of value owned by the applicant. This will usually be their home or business property, but could also be vehicles, business equipment or anything else of value the lender is willing to accept.

The loan is issued by the lender as quickly as possible, often within a few working days for prompt repayment between six and 18 months later. Interest is charged on a monthly basis (typically around 0.5% or less) and the full amount owed is repaid in one lump-sum payment.

How Do Bridging Loans Benefit Small Businesses?

Bridging finance is unique in its accessibility and comparative affordability. As for why it can be a particularly useful facility, there are several reasons why smaller businesses are turning to the bridging sector in record numbers:

Covering Initial Startup Costs

Getting a small business up and running in the first place often proves the biggest financial challenge of all. With bridging finance, the funds needed to kick start a business project can be made available within a matter of days.

For the lender, all that matters is the provision of assets of sufficient value to cover the costs of the loan and a provable exit strategy. This means demonstrating to the lender how and when you intend to repay the loan at a later date. If you can present a convincing case, your application is likely to be accepted.

Funding Expansion And Development Projects

The same can also be said for small business expansion of any kind. Obtaining affordable short-term funding from a conventional bank or building society can be tricky in today’s economic climate. The higher the sum needed to fund the project, the bigger the challenge in gaining the support of a major lender.

This is where the flexibility and accessibility of bridging finance can prove helpful. Even if you have been turned down for support on the High Street, there is still every chance you could qualify for an affordable bridging loan.

Unexpected Temporary Financial Shortfalls

Bridging finance can also be invaluable in time-critical situations; covering unexpected costs, settling outstanding tax bills, funding emergency repairs or property improvements, all possible with a fast-access small business loan without collateral.

On the High Street, conventional mortgages and business loans can take weeks or months to underwrite. In the bridging sector, a typical loan application can be processed and completed in matter of days. Where time is a factor, nothing gets the job done faster for smaller businesses than bridging finance.

Purchasing Properties For Less Than Their Market Value

One of the most popular uses for bridging finance is funding the purchase of bargain properties, both commercial and residential. A typical example of which would be a property up for sale at auction, available for a price lower than its true market value. Of course, there are several best tips to help sellers end auctions early.

With a bridging loan, the property can be purchased at short notice, renovated to boost its value and sold on to generate a significant profit. It can also be retained by the business for its own use, switching the bridging loan to a longer-term loan or remortgage for gradual repayment.

Funding Purchases Excluded From Conventional Mortgages

Most banks and lenders are quite restrictive with regard to how their loans are used. Even if you are able to qualify for the product you need, you will have limited scope with how the money can be spent.

Bridging finance is different in that the funds can be used for any legal purpose whatsoever; purchasing rundown or non-standard properties, purchasing land for development, picking up equipment or machinery at auction, debt relief or anything your small business needs. All with significantly lower overall borrowing costs than any comparable High Street loan or mortgage.