What is bridging finance?

There are many different avenues to follow when you plan on borrowing money, different types of lending have been set up to accommodate a variety of conditions. The type of lending you need to undertake will depend on the amount of money you require and the length of time over which you plan to make payment. If your business needs access to more money in the intermission before acquiring a substantial payment, then the answer could be bridging finance.

What is bridging finance?

In short, bridging finance provides short term funding, and is usually provided to give you the funding needed to secure property or land. These loans will normally last for a maximum period of 12 months, although some can be as short as 2 weeks, at which point it is expected that you can pay off the entirety of the loan. Unlike other forms of lending, there are no heavy penalties for paying back the loan early – both parties understand that the loan is for a short period, and therefore early payment is an advantage to the lender and borrower.

How does this form of lending work?

The basic principle that drives bridging finance is that lenders give you a sum of money to help you pay for an expense while you wait for a predicted payment to cover the bridge loan. It is important to note that this is not a long term financial solution; it is simply designed to cover the gap between payments. Lenders will generally provide loans for a certain percentage of the property/ equipment price and for a relatively short period of time.

Bridging finance for businesses

There are a huge variety of reasons why your business may require this short-term financial input, however as long as you have money that is expected to come in, in the near future, you can apply for a bridge loan. This money can be used for any of your business needs, from securing land or a mortgage, to paying staff, buying equipment or even launching their initial public offering. Often, this type of finance is used to help you acquire property which needs to be purchased quickly, either in an action or a fast deal; giving you the funding while you wait for a commercial mortgage.

Types of bridging loans

There are two main types of bridging loans available, these are open and closed. The difference between the two is that on an open bridge loan the close date is an unknown factor, whereas closed loans have a set finish date. Generally, the ‘open’ option has higher interest in response to the greater risk it poses to the lender and because there is no prearranged payment set up to provide an exit strategy; the lender will require more details about the business. ‘Closed’ contracts occur when you have a clear-cut exit strategy in the form of a planned payment, minimizing the risk associated with lending you the money.

Finding the right bridging solution for you can be a complicated tasks, there are many potential lenders who offer different loans at various rates of interests. To get the best loan for your business in the fasted possible time you should consult a bridging loan broker.

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