What is Bridging Finance?
Bridging finance is a type of short-term loan, typically between 1 to 12 months.
Think of it as a temporary loan to get you from A to B until you can either clear the loan in full or secure a more permanent form of finance – this is why it’s called a Bridging Loan.
How does Bridging Finance work?
By its nature, bridging finance is intended to be a short-term loan.
Before applying for bridging finance, it’s important that you have a clear purpose for the loan and a realistic ‘exit strategy’ for repaying the loan. These are the first things a potential lender will ask for.
There are 2 main types of bridging finance;
- Open agreements
- Closed agreements
Open bridging finance doesn’t have a defined repayment period and has no ‘final date’.
Closed bridging finance does have a defined repayment period and has a final date by which the full amount of the loan and any fees need to be repaid. If you have a closed bridging finance agreement and you don’t settle your balance by the final date, you will be subject to penalties.
Based on this description, you may wonder why a business would opt for a closed bridging finance agreement. The answer to that is simple – rates.
An open finance agreement typically has higher interest rates because there is greater risk for the lender. If your business is absolutely confident that the funds to repay the bridging finance will be with you before the final date, it can often make more commercial sense to opt for a closed agreement.
One of the main benefits of bridging finance is that once your application is approved, funds can be with you quickly.
Your business shouldn’t make any decisions about bridging finance without speaking to one of our qualified and experienced financial partner first.
Find Bridging Finance for Your Business
There are a large number of online lenders that offer commercial bridging finance.
This means it is really important to choose your finance partner carefully and choose someone that has experience and expertise in working with businesses in a similar situation to yours.
Our panel of bridging finance experts on THEDIRECTORSCHOICE.COM all have experience in securing bridging loans for growing businesses, and we’ve made it easy to find a finance partner to match your business needs.
One of the main benefits of bridging finance is that it can be relatively fast to arrange compared to other funding options. It can provide your business with access to a large amount of capital, quickly.
However, compared to longer term finance options like business loans, bridging loans can be quite expensive and it’s important to make sure you avoid any hidden charges from your lender.
This is why it’s so important to seek advice from one of our funding experts before taking out bridging finance to ensure this is the right funding option for your business.
Rates for bridging finance vary from lender to lender. Rates can also depend on the size of the loan, whether it is an open or closed agreement and a variety of other factors.
It is worth noting that bridging finance can be comparatively expensive when measured against other finance options.
Our experienced bridging finance experts will be able to give you a more accurate overview of how much it is likely to cost, based on your own individual circumstances.
The most common use for bridging finance is to help fund a commercial property purchase while you wait on the sale of an existing property. In this example, the use and rationale for the finance is clear, there is a valuable asset to secure the finance against, and there is a clear ‘exit strategy’ when the existing property is sold.
But bridging finance can technically be used for a variety of different reasons. Perhaps your business wants to purchase specific stock in the summer months, with the intention to sell it over the Christmas period and use the profits as your ‘exit strategy’.
Just remember that to be successful in an application for bridging finance, you need to have a clear use case for the funds, assets to secure against, and a solid exit strategy.
Your chosen lender will want to see that you have a solid exit strategy. An exit strategy is how you plan to repay your bridging loan when the time comes.
There is nothing stopping a new business or start-up taking on a bridging loan.
The only challenge that new businesses might have is that bridging finance needs to be secured against a valuable asset, which a younger business is less likely to own compared to more established businesses.
It’s also worth considering if the specific use case requirements of bridging finance are aligned with your needs as a fast-moving start-up. Speak with one of our bridging finance experts as they will be best placed to advise you on this.
It’s important to get the right advice before deciding that bridging finance is right for you.
THEDIRECTORSCHOICE.COM brings a panel of trusted business finance experts together in one place and helps you find the perfect match for your business needs.
Get in touch with our experienced bridging finance partners to find out if bridging finance is the right solution for you.