What can I use a bridge loan for?
If your business needs fast access2to2finance, Bridging Loans can be used for a number of purposes, including:
If your business is looking to build it's own property a bridging loan can help cover the costs of buying the land and the buildings work. whilst allowing you time to find the right commercial mortgage.
Buying a Property
Bridging loans are known for being quick to secure should you find a property that you need to move quickly on. This means you don't miss an opportunity allowing time to find a commercial property mortgage
Need to renovate a commercial property? Bridging loans can be used to provide fast access to the cash you need until its possible to re-mortgage to release funds for the project costs incurred.
Other uses for bridging loans
If you need fast finance to buy a property at auction.
Provides quick access to short terms working capital.
Buy to Let Properties
Don't miss out on property investment opportunities.
Cash Flow Problems
Use when your business needs fast access to finance.
Loans to Chain Break
Can be used when someone pulls out of a property sale.
Loans for Moving Offices
Found your next office space and need short-term funding.
When your commercial property needs upgrading
Emergency Tax Liabilities
Get your unexpected HMRC tax obligations up to date.
Is a Bridging Loan Right for my Business?
As with all commercial finance options, understanding if a bridging loan is right for you will depend on the current financial position of your business and its goals and ambitions.
Bridging loans are an incredibly efficient way to secure short-term business loans compared to commercial mortgages that usually take a little while longer to finalize. Bridging loans are ideal for when your business needs to borrow a relatively large sum of money it intends to pay back quickly.
One scenario would be for example, your business has found a larger premises at the right price that it would like to secure and you had not yet put your current commercial property on the market. So, in a situation like this you can secure a bridging loan so you don't lose out on purchasing the new property, whilst allowing you time to put your existing property up for sale. You should then be able to pay back the bridging loan quickly when your existing business property is sold.
To be eligible for a bridging loan, you need to meet this criteria:
As with all types of finance, you must make sure any amount borrowed is affordable and that you will have the funds to pay the business loan back. Bridging loans are secured against other assets e.g. vehicles, machinery, assets etc. If you fail to keep up to date with your repayments your assets could be at risk.
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Pros and Cons of Bridging Loans
When considering if a bridging loan is right for you, there are a few things to consider. Here we list some of the potential benefits and disadvantages to calculate before you apply.
Borrow larger sums of money
As bridging loans are secured against tangible assets (vans, property, machinery, land etc.) you can often borrow more far easier.
Flexible borrowing terms
With a large choice in this type of business loan available, this offers your Company a choice of potential funders and flexibility.
Not like other types of business loans and commercial mortgages that can take a little longer to secure, bridging loans can typically be approved and paid out in a matter of days, subject to Terms and Conditions.
Higher borrowing costs
As with any shorter-term finance, bridging loans typically attract higher APR's (the cost of borrowing).
Assets at risk
As bridging loans are secured against existing business assets, should you be unable to repay your financial obligations your assets are at risk.
This type of business loan can come with other charges e.g. arrangement fees, early exit fees and sometimes necessary legal fees that can all add to the overall cost of borrowing the money your business needs.
How much do business bridging loans cost?
There are a number of factors that come into play when working out the overall cost of a bridging loan. Several things that affect the cost of borrowing can include the cost of arrangement fees, the final interest rate repayable and the overall loan amount required.
In addition to the loan amount your business is seeking to borrow, you should also weigh up:
- Arrangement fees: A typical arrangement fee is around 2% and bridging loans do include them.
- Valuation fees: This is the cost of assessing the resale costs of the assets the bridging loan is secured against.
- Exit fees: When the loan is paid off, it is not unusual to be charged an admin fee. This is to cover the costs of labour in removing the lenders 'charge' (or name) against the asset the loan was secured against.
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Find a bridging loan that is right for you and your business
Tell us about your Company
We will need to have a quick chat to learn more about you and your business. This is done over a 10min phone call with a friendly customer services agent.
We will find you a number of options
We will find a number of partners who will be happy to arrange the funding your business needs. When we have offers we will present them to you.
Apply for the loan that's right for you
When you have decided on the best business loan for you, a full application can be made so the funds can be released on final approval. Funds released in a matter of days.
Although bridging loans can be arranged fast, and often much quicker than a commercial mortgage, it can still take several days and possibly up to several weeks to finalize. With bridging loans being secured against your tangible business assets, it depends how quickly a valuation of the assets the loan is to be secured against can be arranged and completed.
If you are not certain if a bridging loan is right for your Company, what other options do you have?
Where you have built up adequate equity on your current business mortgage, you could consider remortgaging as a way to release the funds you need. You should be able to remortgage with your current lender or consider switching to an alternative lender and increase your mortgage to release cash that can be used elsewhere within your business. Remortgaging can sometimes be advantageous should you be able to find a lower mortgage rate.
If you feel that on this occasion, a bridging loan isn't right for your business you could consider getting an additional, second mortgage. Second mortgages are secured against the equity (or capital) already built up within the first mortgage.
All businesses needs to explore all viable options when it comes to deciding the best way to gain access to finance. This type of business finance comes with pro's and con's. One of the main risks is that this type of loan is secured against pre-existing business assets that will be lost should your business struggle to repay its financial commitments relating to loan repayment.
If your business has CCJ's or recent defaults on repayments you should seek to repay these ASAP as they can restrict your ability to gain access to finance; having said that you may still be granted access to a bridging loan subject to terms and conditions and adequate security for the loan to be secured against. If your business has a bad credit profile then you should explore ways to improve your credit rating before considering other types of credit. Some lenders might be more keen to lend to companies with bad credit providing there are sufficient assets that can be recovered should you default; for this reason, you should think carefully before applying for a bridging loan because you could lose the assets your business already owns.
Any business needs to think carefully when applying for commercial finance to ensure it makes the best decision it can at any given time.
Will you pay variable or fixed rates?
Your Company can choose between paying fixed or variable rates. Variable rates can fluctuate from month to month in line with market trends and fluctuations. Variable rates can be problematic as you may never have a clear picture of what your repayment amounts will be and how much your interest rates will be. Fixed rates, on the other hand, provide additional security in that you will know exactly how much your repayment amounts are month on month. This means that you may be able to plan more effectively reducing the chances of being caught out by differing repayment amounts as with variable rate loans.
Is this type of business loan a first or second charge loan?
Second charge loans are for when you already have a loan secured against an existing mortgage with outstanding repayments on it. If you are seeking to make improvements or renovations to a commercial property you would need to take out a second charge bridging loan. In simple terms, 1st and 2nd charge mortgages are just an efficient way of writing down in what order prior loan providers get repaid should your business be unable to repay the loan before the end of the agreed term.