Bridging loans for small Businesses
The demand for bridge loans from small businesses is on the rise. The increase in demand from SMEs is driving competitiveness with bridging loan providers and bringing fees down. If your business is looking for an alternative to a commercial mortgage and already has equity in a current property, bridging finance just might be the solution.
What is a bridging loan?
A bridging loan is a type of secured short-term loan that allows you to quickly borrow large amounts of money. The loan is secured against property or land you or your business owns or, in some circumstances, the value of equipment or unpaid invoices.
Bridging finance allows you to release the equity in your assets until you can secure long-term finance or can pay it off. The exit strategy usually forms part of your loan agreement. Because the loan is secured against your assets, businesses, and owners with a poor credit rating are considered.
How bridging loans help small businesses
A bridging loan can help your small business by allowing it to release equity. You can use the funds to drive business growth and improve working capital. You can use bridging finance to purchase a commercial property quickly without the complications of a property chain. You can also use the funds to buy stock, which will later be sold to customers, thus adding further value.
Bridging loans are also an ideal alternative to a mortgage when property development includes large refurbishments or a change of use. If you are adding value to properties, the loan can cover the cost of building works.
Types of bridging loans
Bridging loans bring flexible repayment terms and access to competitive bridging loan rates. The interest in bridging loans is usually handled as:
- Monthly: Interest is paid each month, so you pay less interest overall.
- Retained: Interest is paid on the last month of the loan. This is slightly more expensive, but there are no monthly costs, and the interest is calculated at the start of the loan.
- Rolled up: The interest is rolled up until the end of the term. It is added monthly, so the amount of interest added each month increases. This can be less expensive than retained interest.
Advice when getting a bridging loan
You should make a solid repayment strategy, and it is often not ideal to use personal assets. The finance needs repaying within the loan term (usually 12 months) due to high-interest rates and penalties. If you are considering a bridging loan, you should speak with an unbiased financial advisor.