The Bridging Loans market will have financed more then £2bn in short term financing by the end of 2013. Annaul lending has grown by 9% in the 1st quarter and by 39% the 2nd quater of 2012.
Bridging lenders are increasingly willing to lend to Businesses for cash flow, stock. The Buy-to-Let market has also turned to bridging loans to complete purchases. We also recently reported that, Strong evidence now suggests that the government-created Business Bank is not keeping up with alternative forms of bridging finance for small businesses. Since the creation of the Bank in September, it’s played a major part in bankrolling small businesses, handing out at least £300m in loans for small companies. While it’s expected that this number will soon increase, recent trends suggest that bridging finance is playing an even bigger role in small business loan provisions.
In today’s volatile economic climate, cash flow is a major hindrance for many investors and business owners. Bridge loans offer a practical solution for both large and small businesses seeking to re-locate, invest in additional properties or temporarily increase their liquid capital. How does bridging finance work?
What are Bridging Loans ?
Simply put, a bridge loan is a temporary or short-term loan intended to provide cash until investment funds are released or long-term financing can be secured. Due to the higher risk of a bridge loan, this type of financing usually comes with a higher interest rate, usually between 11 and 15 percent, and additional fees not associated with long-term financing. However, bridge financing can usually be secured quickly and provide much needed cash flow. A typical bridge loan term can be as little as two weeks or as long as three years.
When Should You Use Bridging Financing?
Savvy investors usually avoid high interest loans. However, bridge financing has its place in the financial and investment arena. Consider the following examples.
- Commercial real estate investors are some of the most frequent users of bridge financing. A bridge loan is ideal if an investor needs to close quickly on a new property, needs to save real estate from foreclosure or simply needs to buy some time until long-term financing can be secured. For example, a business owner may want to secure a larger facility. However, he or she needs cash from the sale of the current property to put down on the new property. A bridge loan can provide this cash flow until the sale of the current property is complete. The bridge loan is repaid once the old property is sold.
- Similarly, some business owners want to secure a property, but the building needs improvements before a traditional lender will commit to a long-term loan. A bridge loan can provide the cash to make the needed renovations. The loan is typically repaid once cash from the long-term loan is received.
- Bridge financing in also advantageous when speed is an important factor. For instance, when a property is purchased at auction, the buyer usually needs 10 percent down immediately and only has two to four weeks to secure the rest of the financing. A bridge loan is a practical solution since getting the property at a discount usually outweighs the interest and fees associated with a bridge loan.
- Bridge loans can also be used to ease major transition periods within a firm. For example, if one partner decides to leave the company, taking much of the funding, while the remaining partner wishes to continue the business. Tangible assets, such as property, can be used to receive bridge funding until money can be raised from other investors or sources.
- Corporate financing is also an area that utilizes bridge loans to obtain additional cash flow for a short period. For instance, a corporation may need extra money for expenses while waiting in between private equity payouts. Companies in economic distress may be able to secure a bridge loan while waiting for an investor or an acquisition to take place.
Bridging Loan Tips
Bridging financing can definitely provide the much needed cash flow to make your business successful or to simply stay afloat in a down economy. However, borrowers should be sure to understand the terms. When speaking with your financial institution, keep in mind the following tips.
- Avoid getting a loan with prepayment penalties. You will have more financial options if you are able to repay the bridge loan anytime before the term expires.
- Borrow enough. Error on the safe side. If possible, borrow a little extra in order to avoid running out of the funding you need to achieve your goals.
- Don’t borrow too much. Although, this seems contradictory to the item above, be conservative. Honestly evaluate what you need money for now and what can wait for traditional financing later.
- Select a long enough term. This is especially important if your repayment is dependent on the sale of a property. Anticipate that it may take longer than expected to sell your old property.
Business Bridging Loans Resource
Bridging Loans rise by 16% in second quater
Bridging loan finance and short term finance increased as applications for bridging loans rose by 16%. The number of bridging loans written rose more than 16% in the second quarter of 2013, according to the latest figures.
The Association of Short Term Lenders (ASTL) reported a 16.9% rise in bridging loans, while the number of applications increased by 5.3% to over 2,600 in the three months to 30 June 2013.
Bridging Loans & Finance – Leicester, Derby, Nottingham, UK
Greenfield Capital is located in the heart of Birmingham and perfectly placed to service the Midlands and the UK. Greenfield Capital was born out of a requirement for common sense underwriting in bridging, a need for excellent service and integrity in the short term finance market.
Bridging Finance beating Business Bank Finance
Strong evidence now suggests that the government-created Business Bank is not keeping up with alternative forms of bridging finance for small businesses. Since the creation of the Bank in September, it’s played a major part in bankrolling small businesses, handing out at least £300m in loans for small companies. While it’s expected that this number will soon increase, recent trends suggest that bridging finance is playing an even bigger role in small business loan provisions.
Bridging Loans & Short Term Bridging Finance – Midlands, UK
Bridging loans are offered for various financial requirements for example time sensitive deals such as auction purchases, money for business cash flow and light property refurbishment, the list is endless. These are based on 1st and/or 2nd charge loans and can be arranged in a very short period of time.
John Yates Managing Director of Greenfield Capital has 12 years commercial and residential property funding experience. John was responsible for managing the secured lending department of a high street bank and brings a wealth of experience in property underwriting.