Looking for a short term finance solution? A bridging loan could help your business to bridge a cash flow gap.
For most businesses, there isn't a large pot of cash that can be freely dipped into when an opportunity comes up. A bridging loan can help businesses make a purchase, whilst waiting for funds to become available
These short term loans allow companies to access funds in a relatively short period of time, effectively bridging the gap before securing a longer term solution.
A bridging loan provides immediate funding for a specific purchase. These loans typically last 12 to 24 months. To qualify, you'll need a clear exit plan to demonstrate how you intend to repay the loan quickly, by obtaining a commercial mortgage or selling a property for instance.
Bridging loans are short term and quickly approved which means they can come with higher interest rates than longer term options. Lenders will also likely charge what is known as an arrangement fee, that you pay when the loan is set up.
Time is crucial when funding a purchase, especially in auctions. Bridging finance can be arranged within a few days, enabling you to swiftly capitalise on opportunities without delays.
Lenders can pre-approve commercial bridging loans within 24-48 hours. This rapid approval gives you the confidence to bid at auctions for example, knowing you won’t lose your deposit or damage your reputation if financing falls through.
Bridging loans are typically secured against the property you are purchasing. This security allows lenders to offer the loan quickly and may result in more favourable terms because the risk to the lender is reduced.
| Pros | Cons |
|---|---|
| Bridging loans offer the choice between fixed or variable interest rates, giving you control over how you manage your payments. | As a short-term form of finance, the cost of a bridging loan could be higher as rates are likely to be more than a long-term loan. |
| Quick Access to Funds: Unlike commercial mortgages that can take months, you can secure a bridging loan in just a few days, perfect for urgent financial needs. | You will have to pay more fees than most business loans such as arrangement and exit fees. |
| Bridging loans can provide more capital than unsecured loans, which can be crucial for significant investments or expenses. | The loan is often secured against the property which does mean it's at risk if repayments aren't met. |
| They are ideal for buying auction properties, where you must complete the purchase quickly, often faster than a traditional mortgage would allow. | You might need to provide an upfront deposit to secure the loan. |
An open bridge loan is where there is no specific date for the business to repay the loan. There will be a term length, so you will have to pay it before the term is over (usually 12 months). However you can repay the loan any date within that period. This could be suitable for a business that has found a property they wish to purchase but hasn't sold their own property yet.
Closed bridging loans have a fixed repayment date so you will know exactly when the loan needs to be repaid.
With a fixed-rate bridging loan, the business and the lender will agree to an interest rate so you will know exactly how much you will need to repay. Your monthly repayments will be the same every month with a fixed rate bridging loan. However with a variable rate bridging loan, your interest rates can change either up or down each month.
A bridging loan is primarily for any business needing quick, short term financing, particularly in situations where other types of funding take too long to secure. They can be valuable for property developers who need to quickly purchase or renovate properties. Some businesses might benefit from bridging loans, as they provide a fast injection of capital to cover unexpected expenses.
The process of applying for a bridging loan can be a quick one. There's a few pieces of information you'll need to put together for the bridging lender.
Here's a step-by-step guide to the application process:
1. Give the background details
The lender will need to know a few key details for a bridging loan. You should provide information on what your business does, what you need the bridging loan for, how much of a deposit you have and how much you’re looking to borrow.
2. Gather your documents
You’ll also need to provide some documentation. It’s best to gather up your business’ latest annual financial statement, details about the property you want to purchase and details on the property or asset you’re using as security
3. Answer the funding questionnaire
To put your application together, log into your Capitalise account and complete the questionnaire.
4. Send your application to 4 lenders
One of our specialists will help you put together the application and send it to the 4 lenders most likely to approve you for a loan.
Like all business loans, a bridging finance lender will charge interest on the funds, but there may be additional fees associated too. These include an arrangement fee (typically 1-3% of the total borrowing), a fee to value the property and legal fees to take a charge against the property. Some lenders may also charge an exit fee in case of early repayment.
To be eligible for a bridging loan, a lender will need to see a clear exit plan for the bridging loan. For a commercial property for example, this would be to refinance onto a commercial mortgage. Up to the discretion of the lender, they will also likely require a business to have a good credit score, be profitable in their last set of accounts, have experience with property or development and have a deposit.
Bridging loans tend to be a quick form of finance. From application, you could get a bridging loan in as little as 72 hours.
Yes you can get a bridging loan with bad credit. Because the loan is secured against a property, there is less risk of the lender losing out on the investment, so it is possible to get a bridging loan with bad credit. However, it's worth bearing in mind a bad credit score will reduce your chances of getting approved and will mean your business will have to pay higher interest rates.
Commercial bridging loans tend to be for the purpose of buying a large asset, so most lenders will have a minimum loan amount of £50,000. Some lenders will have a minimum of £25,000.
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