Home Finance Exploring Bridging Finance for Short-Term High-Value Loans

Exploring Bridging Finance for Short-Term High-Value Loans

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Bridge loans are commonly used by businesses and individual entities to provide short-term financing. With bridge financing, businesses may receive the capital they need for immediate use while arranging long-term financing.

These loans are often available in amounts up to 25 million pounds and typically carry short terms. In fact, most bridge loans have a length of two years or less.

The bridge financing sector continues to grow at a rapid pace. Less than a decade ago, this sector in the UK was valued at around 750 million pounds. It is currently valued at over 4 billion.

For those looking for a short-term financing solution, it may help to learn more about bridging finance.

What is Bridge Financing?

Bridge financing refers to a method for bridging the gap when your business needs to cover major expenses. Businesses may use a bridge loan to gain more capital for short-term expansion and other business plans.

As these loans are often high-value loans, they need to be secured with collateral. Typically, real estate properties or other business assets are used to secure the loan. The collateral also helps businesses receive a generally low-interest rate. In fact, most bridging finance loans carry an interest rate between 0.6 and 2.0 percent.

Due to the demand for bridging finance, there are close to 40 major UK lenders that offer bridging finance. There are also several thousand brokers available to help businesses with their financing options.

The lenders are divided into two groups. There are non-regulated and regulated lenders. While both groups need to comply with the FCA guidelines, lenders that are not regulated are not required to complete a credit score check.

Businesses and entities with lower credit scores may seek financing through a non-regulated lender. However, these lenders are also more likely to offer a higher interest rate.

There is an important note about using a non-regulated lender. When applying for a loan, you cannot use your primary residence as collateral to secure the loan.

New Businesses May Benefit from Bridging Finance

Bridge loans are typically used by businesses when they do not have the capital to complete a specific project, such as opening a new office or upgrading their facilities. However, start-ups may also benefit from bridging finance.

When you are first trying to get your business up and running, it is easy to burn through your available start-up capital quickly. With a bridge loan, start-ups can receive the financing that they need to speed up their business growth. Using these funds, businesses can buy new equipment or hire new workers.

Bridge Loans are Also Available for Homeowners

Besides businesses, homeowners can also apply for a bridging loan. For example, when purchasing a new home, you may require funds from the sale of your existing home to cover the mortgage for the new home. A bridge loan can cover this gap.

Using bridge financing, a homeowner has the option to move forward with the purchase of a new property. When the existing home is sold, the sale of the home is used to pay off the bridge loan.

In the end, bridging finance is a convenient option for short-term loans when your current funds do not cover your financial needs. Most often, the loans are used to cover a temporary lack of funds to prevent any reduction in business operations. If this applies to your situation, consider getting a bridge loan to cover your costs.

John Richardson
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