While big corporations may make the headlines with enormous deals and multi-million pound transactions, the real bulk of the UK market is made up of much smaller businesses. Companies ranging in size from small back-room operations to larger enterprises with up to 250 people fall into the wide-ranging definition of small and medium-sized enterprises, and within this sector of the economy the most competitive businesses can be found. Within the SME sector there are thousands upon thousands of commercial enterprises all vying to keep their share of the market, and unlike their larger counterparts SME's are rarely able to take on large-scale financial resources. In order to remain flexible and competitive SME's must make use of highly adaptable business loans, exploiting bridging finance as an essential tool for developing and expanding their operations.
While bridging finance makes an ideal tool for SME's in need of financial agility it still comes with a cost, and the nature of bridging finance makes it well-suited to short-term projects. It’s still possible to arrange for longer-term solutions but business owners must bear in mind that bridging finance can quickly become expensive if not properly managed. Before committing to any financial product borrowers ought to seek the advice of a qualified financial advisor, who will be able to recommend suitable terms for the loan.
A bridging loan is a type of finance that’s used to cover short-term costs while a long-term solution is put in place; it “bridges the gap”, hence the name. These loans are exceptionally useful and can be put to almost any purpose, from beginning work on a property development project to injecting cash into a business, and the flexible terms available from bridging lenders enable borrowers to construct a tailored borrowing package.
Typically bridging loans are a form of secured finance, meaning that the money is lent against one of the borrower’s assets. Most bridging lenders are highly flexible when it comes to the types of assets they’ll accept as security; while property may be the most common form of securitised asset, other high-value assets such as equipment and vehicles can also be used. Because the loan is secured against an asset, the lender is able to provide a greater level of funding than an unsecured lender could; since they have the option to reclaim their investment through repossessing the borrower’s assets, they have a safety net if the loan isn’t repaid on time.
While this might sound worrying, it actually makes bridging a much more secure option than many other borrowing solutions, and because bridging lenders have a much freer hand than mainstream banks do when creating their lending packages, borrowers stand to benefit from increased flexibility. This flexibility enables borrowing in situations where high street lenders simply can’t help, and allows SME's to get the cash they need when they need it.
A common use for bridging finance in the SME sector is to help smooth out fluctuations in cash flow. Unlike major corporations, SME's are unlikely to have significant reserves of capital (or at least the option to borrow freely if they suffer losses), which makes them highly dependent upon their monthly cash flow. If their income dips, or if a sudden expense comes along, an SME can suffer significantly. Let’s examine two different situations in which an SME business loan can prove useful:
Meeting Overheads: Many businesses in the UK suffer “invoice lag”, whereby their customers don’t pay for goods immediately upon receipt. It’s common for businesses to leave invoices unpaid until the full 30-day term expires, or at least for a significant portion of it, which can prove disruptive to the supplier - if a business puts a great deal of capital into supplying goods it puts them in a precarious position until these goods are paid for, because wages still need paying and overheads (mortgage payments, energy bills, etc.) must be taken care of. Let’s say our business has just finished off a large contract for one of their clients, and has successfully shipped it. They may now have to wait for up to a month before the client pays, in which time they still have to subsidise all the monthly running costs - in order to release the pressure on their cash flow, this business can simply take out a business loan to cover their costs.
Acquiring New Business: Winning a big contract is the goal of most SME's who want to expand, but stepping up to the next level of production is often easier said than done. Investing in new machinery, new premises and new vehicles can be prohibitively expensive, leading many SME's to simply pass up opportunities as impossible to achieve, but with the right source of finance a business can quickly secure the funds it needs to take on bigger, more profitable contracts. In this instance, our business has just won a contract with a major high street store and needs to purchase more equipment to meet manufacturing deadlines. With the use of a bridging loan, they can quickly raise the funds they need in a short space of time and meet their customer’s requirements.
Bridging loans are ideal solutions to the problems that confront SME's. They can be provided in large quantities (loans typically range from £50,000 to several million), and bridging lenders work to exceptionally short deadlines; while a bank might take several months to agree to a loan, an application to a bridging lender is typically completed in under a week (sometimes even faster, if necessary). In addition, bridging lenders can provide terms that banks simply cannot agree to, and allow borrowers to make use of valuable options such as deferring the entire cost of a loan until the final repayment; in the examples above, this would enable our businesses to keep their monthly costs at rock-bottom until the end of the loan. As a flexible and highly effective method of providing funding, bridging loans are an ideal solution for SME's in need of financial agility.'
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
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.
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.
Yes. Whilst not as widely available as 1st Charges some lenders will happily write 2nd charge business bridging loans.