Bridging Loans

Useful information pertaining to Pension Led Business Funding.
Bridging Loans

Short Term Bridging Finance

Are you looking for access to quick funding in order to purchase, renovate or secure a mortgage on a property? Perhaps you just have a general funding gap that needs to be filled fast. With a bridging loan, you could have the money in your bank within 15 days.

Bridging loans are a short-term business funding option used to “bridge” a funding gap in order to make a purchase or payment. These types of loans usually start from £25,000, with no maximum amount and repayment terms are generally between 1 and 18 months.

This type of business finance is often used when purchasing a property, providing a fast alternative to a commercial mortgage; something which can take many months to be approved and may have strict lending criteria which cannot be met.

As with all types of alternative finance options for business, there are advantages and disadvantages of bridging loans that should be considered:

Advantages of Bridging Loans

  • Bridging loans are an extremely fast method of finance, with fewer screening questions asked in comparison to other methods of business funding.
  • Whilst generally used for property, bridging loans are flexible and can be used for just about any personal or business purchase.
  • The market for bridging loans is very competitive, meaning lenders are constantly reducing rates and decreasing turnaround time in order to win customers.
  • A credit check may not be required; however, this will depend on the lender. Additionally, keeping up with your repayment can improve your credit score.
  • Bridging loans can be used to purchase and renovate a property that is not suitable for mortgage purposes, this is usually properties that are not in a habitable condition.

Disadvantages of Bridging Loans

  • Due to the short-term nature of bridging finance, these loans will attract a much higher rate of interest in comparison to other alternative business funding options.
  • Like all forms of funding, failure to keep up with your repayments will mean you lose your collateral.

What is a Bridging Loan?

Bridging loans are a short-term, fast and flexible business funding option designed to raise cash quickly to ‘bridge’ a funding gap. This form of funding avoids the lengthy application processes that are commonplace when borrowing from the banks or other traditional lenders. Bridging loans are generally used for:

  • Completing a business or residential property purchase.
  • Refurbishing, renovating, converting and restoring properties.
  • Buying a property at auction.
  • Raising funds for a deposit.
  • Paying off inheritance tax to get access to the inherited estate.
  • Preventing repossession of a property.
  • Bridging a funding gap whilst a more permanent funding solution is found.

Additionally, bridging loans are sometimes used to fill a cash flow issue in the off-peak season, with income from peak season then being used to clear the loan. In these scenarios, a cash flow loan can be a more appropriate alternative.

Read our Bridging Loans Case Study

How Does A Bridging Loan Work?

Bridging loans work by offering fast and flexible access to finance. When utilised correctly, commercial bridging finance can be an effective short-term funding solution, allowing a funding gap to be filled before being paid off or finding a more feasibly permanent method of funding.

Like any short-term funding option, bridging loans have a high-interest rate and so should not be used in the long term. The rate of interest paid will depend on the lender, the amount of funding required and the individual circumstances.

What’s the Process for Funding?

Like a traditional business loan, you will need to send an application to a lender with your required amount of funding, what the funding is for and your expected repayment period.

However, unlike a business loan from a bank or other traditional lender, you can expect to receive a response much quicker – with some lenders able to give you a response within 24 – 48 hours of the initial application.

Bridging Loan FAQs

Generally, the timeframe from initial application to receiving funding from a bridging loan can be as little as 15 days. Exact timeframes will depend on the lender and what the funding is being used for.

Yes, given the instant nature of this form of business finance, you can expect to pay a fee directly to the lender for providing the loan. However, this can usually be added on top of the loan total and paid off alongside the regular repayments.

Yes, bridging loans are often used by buyers at property auctions to cover the initial deposit, providing much faster access to funds versus going through a traditional property finance provider. They can also be used to purchase properties that are considered uninhabitable whereas a traditional mortgage cannot.

The impact your credit rating has on your eligibility will depend on the amount of finance required, repayment terms, the initial deposit and the lender. However, bridging loan providers are generally very flexible with their lending criteria. When using Business Funding Shop, we will only introduce you to lenders with the highest chance of acceptance based on your requirements.

Whenever you utilise short-term business funding, you should ensure you have an ‘exit strategy’. This is essentially a clear plan of action for paying off the bridging loan including timeframes, whether that be from the sale of the property, paying off inheritance tax or acquiring a more permanent form of funding. If you are utilising a bridging loan on an open basis, the lender will need to know your exit strategy.

There are two main types of bridging finance, open and closed. In a closed bridging finance scenario, the lender is aware of the borrowers exit strategy and a date will be agreed for the loan to be repaid in full. In an open bridging finance scenario, the borrower does not need to inform the lender of their exit strategy or agree an exact repayment date. For this reason, lenders charge more interest on open bridging loans.

If your bridging loan is being used to purchase or renovate the property, then the loan is often offered against the property. However, you may use any personal asset as collateral.

Bridging loans attract a higher rate of interest than other forms of alternative business finance due to their fast and flexible nature. Dependent on the lender, interest rates can reach 1.5% per month, totalling 18% per year.

Apply For a Bridging Loan Today

Do you have a requirement for short term business funding? A bridging loan might be right for you. At Business Funding Shop, we work with a panel of trusted bridging finance providers to find the best deal for you based on your unique circumstances.

To find out more about bridging loans, or whether there is another form of alternative business funding better suited to your needs, give one of our team a call today on 0800 047 2389 or fill out a contact form below and we will get back to you.