What are the benefits of a bridging loan? With so many funding options out there, it can be difficult to know which solution is right for your business needs. Bridging finance or a bridging loan is just one increasingly popular method of short-term lending.
What is a bridging loan?
Bridging loans are a form of fast, flexible, short-term lending. They typically cover a period of 12-months or less.
Simply put their purpose is to bridge a gap in finance, until either a long-term financing solution can be put in place or alternative funds are received from another source, for example the sale of an asset. This type of funding allows for effective financial support for a business during a transition in finance.
There are two types of bridging loan to consider, ‘open’ and ‘closed’. With an open bridging loan, there is no fixed repayment date, but you will normally be expected to pay off the loan within 12 months. Whereas a closed bridging loan usually has a fixed repayment date. This date is based on when you know you’ll have the funds available to pay back what you owe.
What are the benefits of a bridging loan?
With any type of lending, you need to carefully consider whether it is right for your business and your current circumstances. But there are several key benefits to a bridging loan if you’re exploring this option. These include:
It can be arranged quickly
Bridging finance for your business can be put in place extremely quickly, a lot faster than most other forms of lending. In fact, bridging loans can normally be arranged in a couple of weeks and in some cases even a matter of hours. The term of the loan can be as short as one day usually up to a maximum of 12 months and the loan amounts generally start at around £25,000 with no maximum.
It’s often easier to gain approval
Bridging loan lenders are often able to be a lot swifter and more competitive in how they free up funds compared to typical bank lending. There also don’t tend to be any lengthy checks which you might find with a traditional business loan. This is because bridging finance is a form of asset-backed lending – meaning the loan is often secured against an asset of some sort.
Repayments are monthly
Most bridging loans are set to be paid back monthly rather than annually and interest fees are added to the total loan amount. This is often a simpler and more affordable method of repayment for companies who may be concerned about cashflow.
There are no penalties for early repayments
Most bridging finance lenders do not charge early repayment fees. In addition, interest fees are only due whilst the loan remains, so if early repayment is an option for you this also saves money on interest payments.
Bridging loans can be used for various reasons
With many traditional loans, lenders will usually have a specific set of purposes they are not willing to consider – so what you can use a loan for is often limited. However, with a bridging loan this is far more flexible. But remember to support you in obtaining a bridging loan it is essential to have a clear exit strategy to ensure the loan is repaid in the agreed time frame.
Whilst there are a number of key benefits to using a bridging loan, before committing to this type of funding it’s important to consider that you will often find that these loans come with higher interest rates. But once you’ve taken the time to understand your options, bridging loans can be a great way to ensure cashflow and allow you to focus on running your business.
At Compare Your Funding we have helped hundreds of customers get bridging finance for their projects, so to understand more and discuss your funding options call our experts today for a free business funding review.