In the realm of business financing, bridging finance has emerged as a versatile and effective tool for meeting short-term funding needs.
This type of financing has gained popularity among businesses, with a significant number relying on it to navigate various financial challenges.
According to recent statistics from EY, almost a third of lenders find that ‘business purpose’ is the most important reason for borrowers to obtain a bridging loan. In this article, we will explore the concept of bridging finance and provide a comprehensive guide on how to utilise it effectively.
What Are The Benefits Of Using Bridging Finance?
Fast-Track Business Deals
Bridging finance can be a valuable tool for businesses that need to close deals quickly (Source: MT Finance). For instance, if you come across an excellent investment opportunity or a time-sensitive business acquisition, a bridging loan can provide the necessary funds to seize the opportunity without delay.
This type of financing allows you to bridge the gap between the immediate need for capital and the time-consuming process of securing long-term financing.
Funding for Growth and Survival
Bridging finance can serve as a lifeline for businesses facing financial difficulty or seeking capital for growth initiatives. If your business requires a substantial amount of money and you have valuable assets, such as property or equipment, bridging finance can enable you to access the funds quickly.
This can help your business survive temporary cash flow challenges, finance expansion plans or take advantage of growth opportunities that require immediate capital injection.
How Much Can I Borrow With A Bridging Loan?
The amount you can borrow with a bridging loan depends on various factors, including the lender’s policies, the value of the property or assets being used to secure the loan and your ability to repay the loan. Generally, bridging loans range from £25,000 to several million pounds.
What Type Of Businesses Use Bridging Finance?
Buy-to-Let and Property Investments
One of the common uses of bridging finance in business is for buy-to-let and property investment purposes. Whether you are a property developer, landlord or investor, bridging finance offers a way to secure quick funding for property acquisitions or refurbishments.
By using a bridging loan, you can act as a chain-free buyer, enabling you to close property deals faster and gain a competitive edge in the market.
Airlines
Various industries have turned to bridging finance to overcome financial hurdles and avoid bankruptcy. For instance, airlines, which often face volatile market conditions and significant operational costs, may utilise bridging finance to meet their immediate financial obligations and maintain business continuity during challenging times.
This type of financing allows them to bridge the gap between revenue streams and expenses, providing much-needed liquidity.
Construction Industry
Another example is the construction industry. Builders and developers often rely on bridging finance to fund construction projects while waiting for long-term financing to be secured.
The short-term nature of bridging loans allows them to commence work promptly, keeping the project on track and reducing delays that could potentially result in significant financial losses.
What Do I Need To Consider Before Using Bridging Finance?
It is essential to approach bridging finance with careful consideration. Thoroughly assess your business’s financial situation, have a clear repayment plan in place, and seek professional advice to ensure you make informed decisions.
Since you are using property as security, you could always risk losing this if you are unable to keep up with repayments. Repossession rates in the industry are low, but it can be hugely costly for your business.
Bridging finance can be a valuable tool when used strategically, but it’s crucial to weigh the associated costs and risks against the benefits it offers. With careful planning and responsible borrowing, bridging finance can provide the necessary financial boost for your business’s success and growth.
Bridging finance has become a valuable tool for businesses, offering a flexible and efficient means of securing short-term funding. Whether it’s for property investments, fast-tracking business deals or financing growth initiatives, bridging finance provides a viable solution to address immediate financial needs.
By utilising this type of financing, businesses can access capital quickly, seize opportunities and navigate challenging circumstances more effectively.