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Everything you need to know about business finance

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In the modern world of business finance it’s become more important than ever for companies to be able to react quickly to changing circumstances. Ongoing globalisation and the increasingly pervasive role of digital technology throughout the world has meant that businesses must be able to think globally and react instantly. In order to do so, businesses need to have a stable and secure source of finance which can be quickly used to meet a wide variety of needs, and bridging finance is a highly attractive way of fulfilling these tough requirements.

In this article we’ll cover the basic needs of businesses and why bridging finance is so often the right choice. In addition, we’ll highlight what businesses can do to expand using bridging loans, and how a flexible financial solution can enable commerce to thrive and grow quickly and responsibly. Bridging finance can be a powerful tool, but it’s important to understand precisely what the potential implications of this form of finance can be; anyone considering bridging finance for their business should first consult their financial advisor.

What are the needs of Business Finance?

Before we begin discussing how bridging loans can be used to empower developing businesses, we should first take a look at what exactly business finance is. In essence, business finance is a form of funding which is designed to provide a lump sum of capital, which can be used for a variety of purposes. For those used to thinking of loans as a way of meeting sudden unexpected costs, such as personal consumer loans, this form of finance might seem somewhat tough to appreciate: however, business finance is one of the most vital cogs in the economic engine, and the prosperity of almost every business in the world depends upon it.

Generally speaking, a business will need a significant chunk of capital in order to expand. Whether they’re buying up new premises, upgrading their equipment, funding an advertising campaign or training new staff, a business is going to need access to substantial capital in order to pay their way. However, businesses which are expanding rapidly are rarely in a position to put a lot of capital aside for the future; growing companies are continually reinvesting their profits in order to keep up momentum, and simply cannot afford to have money sitting in the bank doing nothing. This means that if an opportunity comes along that requires a large cash investment, a growing business must either pass it up or turn to a business financier.

In most cases, a business will want to take out a long-term financial policy with a mainstream lender. However, although these policies are generally fairly affordable, they are also difficult to put in place and are subject to a lengthy application and validation process. For many businesses, the time it takes to complete this application is too long; by the time funds are made available it’s often too late, and the business has suffered as a consequence. Instead, a short-term solution is necessary to help “bridge the gap” until long-term finances can be arranged, which is where bridging finance comes in.

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Bridging Loans for Business Finance

Bridging loans are high-value, short-term loans secured against a borrower’s assets; they serve to enable businesses to seize opportunities quickly without having to wait for mortgages (or other long-term finances) to come online. Because bridging loans are often extremely fast to put in place, with some lenders offering completion times as low as 7 days, they can be used to secure an opportunity almost immediately. The borrower then gets the best of both worlds; they can make their initial purchase straight away, and once they’ve arranged a cheaper long-term solution they can repay their bridging loan.

Bridging loan is particularly well-suited to business finance because it is an extremely flexible form of loan; almost any combination of size and length can be obtained, and bridging lenders are able to negotiate with their clients to come to an agreement that suits both parties. This contrasts with the rigid structure inherent to most mainstream lenders that requires borrowers to fit within a strict “check-box”, and forces borrowers to adapt to the lender’s needs. Bridging providers are often able to be so flexible because they are made up of a small team of highly professional experts, meaning that lines of communication are kept short and borrowers can always speak directly to a decision maker - red tape is kept to a minimum.

Uses of Business Finance

Bridging loans are commonly used to purchase property, as they provide a perfect solution for a common problem. Very often, a mortgage might not be an appropriate solution for purchasing a property - it might take too long, or the property might not be mortgageable. In either case, a bridging loan is commonly used to purchase the rights to the property so that work can begin, and a mortgage is then sought afterwards. However, this is not the only use to which bridging finance can be put, and there are many other situations in which it can prove indispensable.

The quick access to capital that a bridging loan provides can also be used to fund the purchase of plant machinery or equipment or to help with the running costs of a business. By giving a company breathing room in their balance sheet a bridging loan can make the difference between success and failure for a growing business, and some specialist providers also offer innovative financial products like invoice discounting and revolving trade facilities, which give borrowers a scalable source of funding that matches their needs.

Another common use of bridging finance is to help clear a business’s tax bill. Many fast-growing companies will incur significant tax bills over the course of several years of trading, and the use of a bridging loan to quickly and easily clear these off can be extremely useful. Although a bridging loan itself will need to be repaid with interest, the ability to clear off a large tax bill at short notice is often a useful option for businesses that have undergone significant growth.

Frequently Asked Questions

What is a business bridging loan?

A business bridging loan is a type of commercial loan that allows you to borrow money quickly over a shorter period than a typical bank loan but usually at a somewhat higher rate.

What can a business bridging loan be used for?

A business bridging loan can be used for a huge variety of different purposes. Most commonly they are used for major purchases such as property, for new equipment and machinery as well as to acquire stock. They can also be used as working capital and by new businesses that require a cash flow injection.

Can a business bridging loan be used to resolve short-term cashflow issues or to meet other liabilities such as tax?

Yes. They can be a great way for small, medium or even large businesses to secure a cash injection. Securing business finance from a traditional lender can be challenging as High Street lenders usually want to review a business’s past performance by way of profit and loss accounts for the preceding years. Whilst traditional lenders will put businesses through rigorous stress tests bridging lenders will focus instead on each business’s ability to repay the loan not past performance. For bridging lenders, the asset being used as security and the exit strategy are key.

What can be used as security against business bridging loans?

 A vast majority of businesses will use property or land as security when taking out a bridging loan. There are however a small number of specialist lenders that are prepared to secure bridging loans against equipment, the value of unpaid invoices and projected future sales or even against equity in the business.

What types of companies can use business bridging loans?

Business bridging loans can be an ideal solution for small, medium or large companies including sole traders, LLP partnerships and limited companies. Some specialist lenders will also lend to offshore limited companies, SPV’s and Trusts.

What types of commercial property can business bridging loans be secured against?

With a huge variety of lenders to choose from in today’s market pretty much all types of commercial property will be acceptable including commercial units, mixed use properties, offices, care homes, leisure complexes, farms, retail units, restaurants, pubs, land with or without planning permission and much, much more beside. Business bridging loans are also ideal for commercial property in a poor state of repair, non-standard construction property and once again much more besides.   

Can business bridging loans be secured against private residential property?

Yes. The owner or directors of a business can raise money from their private residences provided the loan proceeds are purely for business purposes. There cannot be any element of private or personal capital raising.

Can business bridging loans be secured against semi-commercial property?

As mentioned above they can be used for mixed use properties. To qualify for a business bridging loan the overall use of the property being used as collateral will need to be at least 40% commercial. For example, if the property is a rental unit with a flat above the commercial part of the property would have to represent more than 40% of the total property. Furthermore, most lenders would also insist on a separate entrance to the flat.

Can private landlords use business bridging loans?

Yes. They can be a great tool for landlords who want to do renovations on their properties to improve rental yields. The value of the properties will also reflect these property improvements and make it easier for the landlord to refinance them onto competitive Buy-to-Let (BTL) mortgages and clear any bridging. Like residential bridging, business bridging loans can also be useful when a property chain is broken.   

Can business bridging loans be used to acquire brownfield sites before planning permission is obtained and run-down commercial premises that are hard to get traditional mortgages against?

Yes. Absolutely. They can be very useful in both the above instances and to solve a variety of other problems.

Can business bridging loans be obtained on both a 1st and 2nd charge basis?

Yes. Whilst not as widely available as 1st Charges some lenders will happily write 2nd charge business bridging loans.  

Can business bridging loans be used by both onshore and offshore companies?

Yes, they can. They can be used by a huge variety of companies as detailed above and by foreign nationals who can struggle to get High Street Finance.

Talk to our business finance experts.
Call us on 0207 043 5271

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