Bridging Finance for the Small Business: How Does it Work?

A bridging loan is essentially a short-term commercial loan secured against an appropriate property or asset. It is designed to be repaid within a matter of months; bridging finance can be uniquely cost-effective over the short term.

Another major point of appeal with bridging finance is the speed with which it can be arranged; typical loan completion times are no longer than two weeks, though it is often possible to access the funds required within just a few days.

This can make bridging loans an immensely useful and versatile product for smaller businesses that routinely encounter unexpected outgoings and cash flow shortages.

How does a bridging loan work?

Bridging finance works in almost exactly the same way as a typical secured loan; the funds are issued against an asset of value, typically the applicant’s home or a business premises, and are repayable by the borrower along with the agreed rate of interest.

What differentiates bridging finance from a typical secured loan is the short-term nature of the facility. Bridging finance is designed to be repaid within a few months in the form of a single lump-sum payment on an agreed date.

There are typically no monthly instalments for the duration of the loan, and the balance in its entirety is repaid in a single payment.

What can I use bridging finance for?

Bridging loans are also advantageous in that they can be used for any legal purpose whatsoever. If you have an asset of value your lender is willing to accept, the funds raised can be invested or allocated in any way you like.

Just a few of the most popular uses for bridging finance are as follows:

• Purchasing properties at auction at rock-bottom prices.
• Buying non-standard properties to refurbish or repurpose.
• Covering urgent outgoings or unexpected cash flow shortages.
• Investing in equipment and machinery for business purposes.
• Relocating to new premises or property expansions.
• Paying tax bills to avoid possible penalties.

In all of the above instances, bridging finance can be more convenient and cost-effective than any conventional loan. again, under the strict condition that the funds are repaid in a timely manner as agreed.

Who can qualify for bridging finance?

As with all loans, lending criteria vary significantly from one lender to the next.

As a general rule of thumb, you can expect the following verification checks as part of the application process:

• Proof of identity and residency.
• Evidence of a viable exit strategy (repayment plan).
• Formal valuation of your property.
• Proof of income and expenditure.
• Verification of current financial position.
• Full credit history check.

In spite of the above, it is worth remembering that many lenders issue bridging finance primarily on the basis of security. If the value of the property used to secure the loan vastly exceeds the total loan value, other verifications (like credit history checks) may not be necessary.

If you have any questions or concerns regarding your eligibility for bridging finance, ensure they are raised with your broker before applying. This will help ensure you target the right lenders with your application in order to secure an unbeatable deal.