Time is money, and that's never truer than in the world of business. And for businesses that need to borrow money, there's rarely time to waste – so waiting weeks and weeks for a mortgage or fixed-term loan to be approved isn't always an option.
One alternative is a bridging loan, which can often be arranged and funded within days. Specialist lender Together has looked at how bridging loans work, and how they can be used by businesses at various points during their lifecycle.
How bridging loans work
Bridging loans are designed to span the gap between a payment going out, and a payment being received. They last up to 12 months, and interest is charged monthly. Rates typically vary depending on the amount being borrowed, the equity in the property, the credit status of the borrower and the type of property itself.
In effect, they are interest-only loans. Monthly repayments cover the interest alone, and the principal loan is repaid in a lump sum within the terms of the loan agreement.
A bridging loan is one way to secure their first business premises – especially if your clients have been offered the chance to purchase at short notice, and can't wait weeks and weeks for a commercial mortgage to be approved and funded.
After putting down a deposit (or using another property they own as additional security), a bridging loan can often be funded within days – leaving your client with the time they need to arrange longer-term borrowing.
Your client can use a bridging loan to leverage the equity they've built up in their premises, to expand their existing space or grow their team. This may be particularly helpful when they have the opportunity to secure a large new client, but need to increase capacity in order to service the account.
Alternatively, retail and restaurant businesses can take advantage of a bridging loan to grow their chain of outlets. They can put down a cash deposit or use their existing premises to take care of up-front expenses: securing the purchase of an additional property; completing a new shop-fit; hiring staff; and purchasing stock.
A bill – like a self-employment tax bill – can throw any businessperson's cashflow into disarray, and prevent them from focusing on the important job or running their business. A bridging loan can be used to clear the bills in the short term, while funds are raised by (for instance) selling property or assets.
Every growing business outgrows its headquarters at some point or another, and a bridging loan can be used to secure a new space while the previous one is sold. This may be helpful in instances where business operations must remain uninterrupted during a move.
Owning both premises temporarily gives your clients the option to appropriately refit the new space, and migrate teams one by one.
In instances such as these, the bridging loan is repaid using the proceeds of the previous property's sale as soon as it's completed.
Cashflow pinch periods
Cashflow is an issue for many businesses, and bridging loans can help those who need money in the short term to make money in the longer term. For instance, many manufacturers may need to invest in raw materials or temporary storage space to accept a large order or ahead of an expected seasonal rush.
For further information about Together’s bridging products, Click here.