How Bridging Finance Can Benefit New Business Start-ups?

How Bridging Finance Can Benefit New Business Start-Ups?

New business start-ups in the UK are increasingly turning to alternative lenders to help fuel their growth and development. Bridging finance in particular is growing in popularity among the small to medium enterprise (SME) community within the UK.

Certain major banks and lenders consider new business start-ups “high-risk” so they are reluctant to provide finance. This means that despite employing close to 16 million people in the UK and contributing 47% of the total annual turnover for the private sector, new businesses are gaining little access to traditional conventional funding.

In fact, less than 40% of SME companies reported successfully receiving loans from major banks and lenders.

The flexibility of bridging finance

Companies unable to obtain mainstream finance can be helped by the bridging finance sector. Bridging finance is a specialist type of borrowing that secures short-term loans against existing assets. Bridging loans are rarely dependent on income, as often no monthly payments are required, but they are dependent on the equity within the security asset(s) and the strength of the exit, i.e., how the loan will be repaid at the end of the chosen term. Bridging finance is designed to be repaid within a matter of months; however, depending on the situation, the loan can be taken over several years.

For smaller businesses in particular, the immediate benefits of bridging finance are relatively obvious:

  • Bridging finance is typically available from £10,000 upwards.
  • From application to completion, it can take as little as a few days to access the money needed.
  • The most competitive monthly interest rate for a bridging loan is less than 0.5% per month.
  • Bridging finance specialists will not automatically discount applicants with an imperfect financial track record or credit history.
  • Bridging loans can be used for almost any legal purpose.
  • A growing SME, for various reasons, can often need significant funds quickly.

Even when eligibility on the high street is no problem, there are advantages to bridging finance that make it a better option than conventional business loans.

An example of bridging finance in action

A new business start-up is growing faster than expected and has received an influx of sales way beyond its current capacity and infrastructure. The new company needs to expand and develop quickly, recruit new staff, upgrade to larger premises, and purchase new equipment.

The company applied for bridging finance of £200,000 to be repaid at the end of a six-month term. The money was received within a week, and the upgrades were immediately initiated, enabling the new business start-up to operate at a much higher volume. Over £500,000 in sales revenues was generated over the subsequent six months, way beyond the amount needed to repay the £200,000 loan, interest, and fees, and now the company is in a position to handle the increased business volume without any further additional costs.

This is a typical daily scenario where traditional funders were unable to help, but a specialist lender stepped in to arrange the money needed. The now-growing new start-up greatly benefited from a simple and cost-effective bridging loan. The eligibility was assessed only on the basis of the borrower’s security asset along with evidence of a viable ‘exit strategy’ and not on the current or historic income of the business. The firm’s exit strategy was its clear plan for increased sales following cash input from the bridging loan.

Independent broker support

As a new business start-up or SME, it can be difficult to access affordable funding when needed. In addition, taking on any debt during the crucial early days requires careful consideration.

We recommend speaking to an independent broker, such as UK Property Finance, before deciding which path to follow. Whether it is bridging finance or another type of secured property finance loan, comparing the market holds the key to ensuring you get the best possible deal.