Bridging Loans for Business: How They Can Help Your Company Grow

– Benefits of Using a Bridging Loan in a Business Context
– Case Studies from BIG Property Finance
– Case Studies from BIG Property Finance
– How to Obtain a Bridging Loan
– Risks and Considerations
– Alternatives to a commercial bridging loan
– Conclusion
– How to Obtain a Commercial Bridging Loan with BIG

In the context of company growth, a bridging loan is short term secured lending provided for business/investment purposes. Also known as ‘commercial bridging.’ The loan is secured against commercial or investment property and differs from a standard unsecured business loan that is not geared against a property asset. Whilst bridging was traditionally for homeowners needing help securing their next property, over time, commercial bridging loans have become an option for businesses needing quick access to capital.

Businesses require ongoing investment and cash injection to support their future growth and overcome market challenges. Short term investment can support unexpected changes in cashflow and meeting sudden payments to help keep a company afloat and facilitate their onward success.

In this post we will be looking at how a bridging loan can be used to support company growth by providing a quick cash injection into a business. We will review some case studies of previous success projects and consider some of the benefits and risks of bridging.

It’s a good idea to seek independent financial advice when looking to obtain lending, depending on your business circumstances, it could be worth considering a bridging loan for short-term financial support. Some of the potential benefits of bridging finance are as follows;

Quick Access to Capital:

We have provided bridging loans in a matter of days. Bridging applications are intended to progress quickly, as they are designed specifically for speed and efficiency. Therefore, if urgent funds are required, within a restricted timescale, a bridging loan may be the answer.

For a business, quick capital may be required in circumstances of;

• Paying for renovations/repairs of the business premises
• Putting down a deposit on a property at auction

Flexibility:

The flexible nature of bridging loans means that they can normally be repaid before the term end without too much restriction. The funds can also normally be utilised at the discretion of the borrower within the remit of business purposes. Make sure you check your loan for a minimum term or exit fee.

In comparison to commercial mortgages, these are more likely to have early repayment fees or admin costs for early repayment or alteration.

Supporting Business Growth:

Bridging loans can be used to seize growth opportunities, such as providing working capital during a transitional period, expanding operations, purchasing inventory, or funding a business acquisition or merger.

Overcoming Short-Term Financial Gaps:

A bridging loan could also be preferential to cover temporary cash flow issues like delayed payments from clients, unexpected expenses or paying for a large intake of stock.

Case Study 1: Commercial Property Purchase at Auction

We completed on an urgent Commercial bridging loan in Reading. Two commercial premises being offered as security, comprising an operational bar and office building.

• Purchase at auction with 28 days to complete, meaning urgent funds were required.
• LTV 60% / 6-Month term
• £897,000 loan amount

This loan allowed the company to expand their property portfolio and support the purchase at auction within a restricted timeframe. Then following the purchase, the company had a 6 month term to refinance the loan onto a mortgage facility to renegotiate their rate and make long term provisions to repay the debt over a longer period.

Case Study 2: Retail tenant offered to purchase premises

Detached former industrial building, converted to a retail warehouse.

Urgent bridging loan requested for purchase of premises, by the current tenant. Currently occupied as a flooring retailer. The company had been occupying the unit on a 10 year lease and established a strong track record and customer base. The procurement of their own premises would support future business growth and secure a long-term property for future operations.

We were able to offer an urgent bridging loan facility;

–          Gross loan £156,000

–          65% LTV

–          18 Month Term

As the landlord was offering the property for a limited time only before advertising on the open market, the borrower wanted quick funds to facilitate the purchase before arranging long term financing.

Case Study 3: Funding for Business Start Up

A bridging loan was requested to purchase a semi-commercial unit in Birmingham. The borrower intended to refurbish the ground floor for use as a Caribbean food delivery/takeaway service and let out the apartment above on an AST.

The borrower was to trade out of the ground floor as their first fast food outlet. The borrower planned to spend £25k on converting the ground floor to a catering unit. She had the funds for this from a business loan at 6% over five years. The unit was a basic shell with all mains amenities.

– Loan amount = £172,750

–  65% LTV

-18 Month Term

Our bridging loan was integral to the client’s business start-up, as it allowed her to secure her first premises, complete the required works and operate her business for a full year so she would have the trading history to support an onward refinance onto a term facility. She also had the security of the apartment, which had already been recently refurbished and so was ready to let for an additional income.

The process of obtaining a bridging loan may differ depending on whether you get financial advice or conduct your own research. Whilst the use of an advisor or broker is likely to incur some cost, you would benefit from their industry expertise and connections to lending firms. This can support your ability to obtain loan terms quickly, at a favourable rate and reduce the time it takes to place your enquiry with a reliable firm. Each lender will have their own criteria and eligibility requirements that a borrower would need to meet for them to consider providing a loan. It could therefore take some time to trawl through multiple providers yourself before finding something suitable.

• Seek advice from a qualified financial advisor/broker
• Identify your requirements and business goals
• Obtain indicative terms from multiple lenders and compare your options
• Accept loan terms and complete your loan application

• Bridging loans have a short term, from circa 1 to 24 months, delays with your exit strategy could result in you being unable to repay your loan within the short timescale.
• Bridging loans are notorious for having higher interest rates and fees than other secured lending. Be clear on the small print and the overall cost of your loan, does the cost still make business sense and facilitate overall growth.
• Secured lending means that your business premises are at risk, in an event of default the property would be repossessed potentially forcing your company into administration.

1. Commercial mortgage: Term lending secured against property.·
2. Business loan: Unsecured funds provided for business purposes.
3. Invoice finance: Lender uses an unpaid invoice as security for funding.

In conclusion, a bridging loan may be a viable option to facilitate the growth of your business. However, consideration should be given to the potential costs and solidifying a firm exit strategy with potential plan B.

Therefore, being clear on your loan requirements and thoroughly researching your options ahead of commencing an application, can save you time and money later before you pursue terms with a lender that you later regret. A bridging loan may not be suitable for your business needs and so advice from an advisor/broker may allow you to explore other options and find the best product for you. Don’t be nervous to contact lending firms and ask questions to aid your understanding.

Bridging finance can be obtained by approaching a lender directly or working with a broker/adviser who can support you through the research and application process. At BIG Property Finance we are happy to receive enquiries through telephone, email or enquiry form on our website: https://bigpropertyfinance.co.uk/. We are normally able to provide indicative loan terms within hours and a potential loan offer in a matter of days. A standard application would be completed within 3-4 weeks; however, we would look to align with our client’s timescale and can have funds available as soon as required, subject to completion of the required legal documents/valuation.