What is bridging finance?
Bridging loans are a finance service provided to help small businesses access quick cash in a short-term contract. They help ‘bridge’ the gap between a debt and a future influx of cash. They’re most often used for buying or renovating property, but can be used for pretty much anything depending on the loan terms.
How does it work?
If your business can’t access a traditional loan to cover the purchasing of an asset, a short-term bridging loan can help. Highly flexible, and for that reason, expensive, they can help you fund an asset in the short-term before a better loan is accessible.
Once in touch with a bridging lender, you could see a decision in principle within just 48 hours. This gives those who need it, a quick-fire method for obtaining high value loans. Once you have secured the asset, you can then take out a loan with better rates and repay the bridging loan.
Bridging finance helps businesses avoid the tight restrictions and long-winded process of applying for a mortgage. That’s why they’re most popular with property development companies, as a property may become available which needs to be snapped up fast. If the seller needs the deal completed within a short period of time, most mortgages will take too long to administer. Instead, a business bridging loan for a house purchase will provide you the cash you need until the mortgage application has gone through.
How long do bridging loans last?
Most commercial bridging finance options are limited to 18 months before full payment is required. But with high interest rates, usually charged per month rather than over the full loan term, it’s recommended to pay off early to avoid paying large fees.
The risk of business bridging loans
One of the biggest risks of using a bridging loan is the fact you may not be accepted for a secured loan once you’ve financed your asset. This puts your business at risk, with the chance of necessary assets and property being reclaimed to make your payments. If you haven’t considered how you will exit your commercial bridging loan, it’s recommended to hold fire and get assurances beforehand.
What’s the difference between bridging loans and development finance?
Bridging and development finance both provide businesses with short-term injections of cash to help finance assets and buy or renovate property. Once the funds are used and the project has been completed, both types of loan need to be repaid. The big difference is the fact that development finance is restricted to development projects and can last up to 3 years. Bridging finance can be used for much more but will generally only last 18 months. If you’re not quite confident about the risks involved with bridging loans, consider looking for development finance with Aurora capital instead.
What are non-status bridging loans?
Non status bridging loans are a form of bridging finance that do not take affordability into account. Put simply, they provide businesses with the chance for a loan that doesn’t need any long-winded analysis of cash flow. Instead, they’re secured against an asset or group of assets.
Non-status bridging finance is generally used for those developing property portfolios who are asset-rich but don’t have much in the way of cash flow. The loan is based solely on the project the loan is being used for. For example, if a developer has a limited cash flow but a history of successful renovations, a bridging lender may enable the purchase and recoup the money further down the line. This could be from that property being refinanced or sold on.
The big problem is that they feature higher rates than status-assessed bridging finance. If the project does not develop as planned, you could end up losing the asset you secured your bridging loan against, as well as the chance of succeeding with your new development.
Why use Aurora for Bridging Finance?
We know that when it comes to business, time is often of the essence. With access to 15+ lenders and strong relationships, we can provide quick and easy solutions to your finance needs. We will source the most competitive, best bridging loans on the market and advise you of the risks involved, including help with an exit strategy if you haven’t yet thought that far ahead.
Speak to our expert team today and find out whether commercial bridging finance is right for you and if so, how much you could borrow. Call on 01371 870815 or email email@example.com.