If you consider the numerous financial options available for you to choose from, it can be challenging to determine which financial product will provide the best benefits to your business. A bridging loan is one commercial product growing in popularity among businesses and residential bridging loans are also an option. Keep reading to learn what is a bridging loan and its benefits.
What Is a Bridging Loan?
A bridging loan is regarded as a short-term loan for businesses. Businesses can usually access bridging loans incredibly quickly. The purpose of this form of finance, however, is bridging gaps in finance, effectively supporting businesses during transition in finance. Bridging loans should be repaid in full once a more permanent form of finance is found. If you are unsure about paying this loan back always use a bridging finance calculator to find out the total amount you will have to pay back.
The term bridging loan comes from the fact that this form of finance will get you from one place to another. Simply put, it bridges gaps in income streams.
Bridging loans were in the past mainly used for funding property purchases, property developments, and auction buying. The reason for this was that there existed a clear commercial purpose at the end to reassure the lender about getting their money back. Today, bridging loans are used for a range of varied purposes, not necessarily buying property. All lenders want to see is a clear exit plan so that they may recover their money.
Businesses typically exit bridging loans once they move to other different financial products such as mortgages, or when they either make a sale or have a guaranteed income in place. The short-term nature of this form of finance means that bridging loans can have rather high interest rates. Fortunately, lenders can be flexible when it comes to interest repayments, which essentially involves making interest payments in lump sum at the end of the loan.
What Are the Benefits of Bridging Loans?
Bridging loans have 4 key benefits, which include:
Quick Access to Funds
You can arrange a bridging loan incredibly quickly, usually much faster than other forms of finance. Bridging loans will typically be available in 24 to 48 hours. If you consider the fact that a business loan or mortgage typically takes 1 or 2 months to organize, it is clear that a bridging loan can be of great help in an emergency or when there’s an opportunity that’s too good to miss.
Easier Lending
Business loans usually require a lot of information such as the financial standing of the business, proof of income, credit score, and lending history. Bridging loans, on the other hand, are a type of asset-backed funding, which means that there aren’t any lengthy checks and that the loan is secured against an asset that has intrinsic value.
No Excessive Fees
Bridging loans typically have higher interest rates, but since they are paid back in a few weeks or months, the interest is controlled thus making this form of finance affordable. You don’t have to worry about monthly rates or rising interest costs. Instead, the lender provides a clear interest structure usually with flexibility regarding how you pay the interest.
Extensive Potential
Bridging loans are typically used to fund property purchases, but they can actually be used for a variety of purposes usually with no questions asked. The only thing the lender will want to see is proof that you are capable of paying back the loan and it will be backed by an asset too.