This is a short-term financial solution for businesses of all sizes.
A business bridging loan can be used for different types of financing needs including:
It isn’t uncommon for businesses of any size to require financial support at some point in their business journey. Additional, short-term financing could help keep a business afloat or allow it to reach its full potential.
Several financing options are available to UK businesses, all of which could support business growth. However, all methods may not be suitable depending on your circumstances.
What is a bridging loan for business?
A type of commercial loan, business bridging loans are a short-term financial solution for businesses of all sizes. They are also known as “commercial bridging loans.”
They are typically used by businesses in need of short-term funding. As the name suggests, bridging loans can help “bridge” a gap in a business’ finances rather than be a permanent financial solution, such as the gap between a payment being due and another source of funding available to make that payment.
A business bridging loan can be used for different types of financing needs.
However, because of the short-term loan period and higher rates of interest associated with them compared to other forms of business finance, they may be more commonly used for major business purchases such as property or specialised equipment.
There are several other uses for a bridging loan, including:
A bridging loan usually requires the borrower (your business) to use assets as collateral against the loan.
This is to cover the lender should your business be unable to pay back the loan and interest, ensuring the lender does not lose their money.
The lender will then provide a certain percentage of the security value – this is known as the LTV or loan-to-value ratio.
The lender will also most likely charge interest based on the borrowed amount and the perceived risk (typically calculated based on your business’ credit score.)
The amount a business can borrow for a bridging loan varies depending on the lender, but the minimum is typically £10,000. Some lenders may not have a limit on how much can be borrowed.
The benefits of a bridging loan?
Specialist lenders can be more accommodating than high street lenders, potentially making securing a business bridging loan easier. This is because they are more likely to consider individual cases, trading circumstances, and be more flexible in adjusting loan criteria.
As a business is more likely to secure a business bridging loan through a specialist lender, it may be possible to secure financing faster. This could also be the case compared to other traditional forms of business financing.
Due to their flexibility, business bridging loans typically do not have early repayment fees.
A bridging loan is a short-term loan used to buy or invest in property. These are typically up to 12 months in duration and are repaid when long-term funding is in place – which can be either a mortgage, or through the sale of the property or another asset.
They are fast, versatile, short-term property loans used in all kinds of property transactions; from downsizing in retirement, to flipping properties for a profit, to buying property at auction. The use-cases are numerous and varied.
For example, bridging loans are often used to buy a new home while you're waiting for your current property to sell - bridging your gap in funding.
Bridging loans can be arranged much faster than standard mortgages; however:
As bridging loans are secured against property, the risks are relatively small to your lender. This means interest rates are fairly low compared to other types of short-term finance.
Interest is calculated and charged monthly; however, if you can pay back your bridging loan early, you'll stop being charged interest on the same day you repay.
For example, if you take out a 12-month bridge but find you're able to pay it back after 6 months, you'll only be charged 6 months interest.
Interest can also be 'rolled up' within the loan, so you don't need to worry about monthly payments - instead, you can opt to repay the entire balance (loan and accrued interest) in one lump sum.
Broadly, the main advantages of bridging finance are:
In many cases, using a bridging loan can mean not having to rush the sale of your house while you buy a new property, and it can also allow you to move quickly in the property market and avoid missing out to cash buyers.
There is a range of different costs involved with bridging finance. The exact bridging loan cost will be dependent on the complexity of your case, loan size, and other factors.
Here’s a list of potential bridging loan costs:
The interest you repay on your bridging loan is calculated as a monthly rate instead of an annual rate, like with a standard mortgage.
Because of the short-term nature of bridging finance, interest rates are usually much higher than a typical mortgage, but you only need to pay the rate for a much shorter period.
Bridging loan rates are affected by several factors, including:
You can borrow up to about 80% of the value of the property you’re using as security.
It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance.
Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan.
You can get a fast bridging loan within a few days. However, not all bridging loans can be arranged this fast, and it depends on your situation and the properties involved.
You will also likely need a broker to push an application through this fast, and it may incur additional fees from your lender and solicitor to expedite your case.
On average, most bridging loans take between 3 to 6 weeks to arrange as a standard timeframe.
Every bridging loan lender in the UK has their criteria that a borrower has to fulfil to qualify for a loan. Whilst most lenders look for low-risk borrowers, many others have niche areas they specialise in and can facilitate.
As a rule, there are two essential criteria you'll need to meet:
Since the loan is secured against property or other collateral, a lender won't need proof of income. Equally, your credit history won't affect an offer as long as any outstanding debts or adverse credit doesn't impact your ability to repay the loan. However, if you do have a bad credit rating, you may have to pay higher interest rates.
Other basic criteria you will need to fulfil include:
If you have any questions about your eligibility for a bridging loan, speak to one of our advisors who will be happy to discuss your situation.
It is fairly common practice to speak to a bridging loan broker for advice on taking out a bridging loan.
You can go direct to lenders, but not all lenders accept direct applicants. Also, most people use a bridging loan broker to guide them through the process, compare rates and get the best deal.
