Bridging Finance in business – what is it? is it worth it

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  • Bridging Finance is a new form of financing where you can “bridge” the gap between borrowing money and repaying debt.
  • For business-specific loans, a bridging loan can be a great option to stop an opportunity or grow a business during an interesting time.
  • The loan can always be secured against an asset, such as your office space or commercial building and the lender is usually a private lender and not a bank.
  • This gives you more flexibility with rates and terms and is more open to different credit histories and backgrounds.

Bridging Finance is commonly used in property-related developments to help developers buy or renovate properties or commercial properties. These types of investments usually require a large total down payment. Developments like this have historically demanded for large down payments, and so if you can find a company that can offer a Bridging loan, it can jump to a project by weeks or even months by accessing funds significantly faster than an industry standard lender.

One is more likely to access a bridging loan through a specialized finance company, challenging bank or perhaps a private lender. This means more flexibility when it comes to loan terms. Some of the more prominent lenders are Octagon Capital, UTB Bank, Masthaven, MT Finance and Shawbrook Bank. Bridging finance always requires a clear exit strategy when agreeing to the terms of the bridging loan, due to the responsibility of the business owner to present a comprehensive repayment plan to the lender.

There are a number of basic ways that a bridging loan can be different from a traditional loan. These include:

  • Bridging loans are more favored for short -term efforts and work very well for specific products.
  • Hiding loans can be set from other methods due to the speed of access of one of their funds. This can usually take a number of weeks, and is usually under a month.

If you have a specific business project, with a clear payment strategy and exit plan, a bridging loan can be a great option. Regular term loans may be a better option for more general commercial projects where time period is not such a factor.

During the ‘exit strategy phase’, if the project does not meet its milestones, there is a possibility of complications, however, with the lender being able to repossess the property if losses persist. If this happens, re-loans can be granted but under less favorable terms. Here bridging can be costly for a business.

Starting a project involving bridging finance is likely to have other costs, such as Valuation fees for the property (in the UK up to £ 1,000 for a basic 4 bed property) , fees from brokers (approximately 1-2% of the loan amount) solicitors and general admin.

If the loan payments are not maintained, the late payment fee is a parity, or if the loan payment is made early, there is a possibility of an early payment payment. Cost levels will certainly vary between lenders, and checking the terms and conditions of the loan is paramount before proceeding with bridging finance.

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