Benefits And Uses of Bridging Finance
With different financial alternatives to select from, sometimes it becomes trickier for the business owners to identify which financial option will be perfect for their company’s benefit. But nowadays, one financial product is gaining rapid popularity, which is bridging finance. It is a type of short-term financing loan for business purposes. The primary purpose of applying for a bridging loan is provide a short term solutions for business loans and efficiently support the business whilst they look for a longer term permanent financial solution.
In the past bridging loans were only approved for property purchase, developments, and auction buying when you would use the loan to purchase another property whilst you waited for the existing house to sell. This financial solution encourages the lender that they will get their loan money back in the end. However, now a borrower can utilize bridging loan finance for other business-related purposes, which might not be necessarily related to the property purchase. Due to the short term nature of the bridging loans, the interest rate is a bit higher, but borrowers find it convenient due to the flexible terms and conditions.
Benefits of Bridging Finance
It is time to check out the undeniable advantages of bridging loans which are as follows.
Faster to arrange
When you seek help from a bank or any other financial institution for a large amount of money, they either take months to get approved and require collateral or a mortgage of the same amount. But in the case of bridging business loans in New Zealand, the business owner can get the funds needed within two days of approval and the funds go straight into their bank accounts.
Submit Any Property as Collateral
You can get bridging funding against your flat, shop, commercial unit, farm, development land, house, office, leisure complexes, or vacant land. A borrower can also submit properties already for sale, which makes the process much easier also.
Non-Standard Construction of the Property
Most of the traditional banks offer loans against a standard residential property. Bridging loan lenders, however, can use any type of property to secure the funding.
No need for any Purpose
If you apply for a loan to traditional financial institutions, you will get loans only for specific purposes and do not include any flexibility. Bridging loans, on the other hand, never bother about where the borrower will spend the money, provided the use of the funds is business related and there is an exit strategy to ensure the loan is repaid on time.
Flexible criteria for Lending
Numerous bridging loan providers offer funding as per their criteria. Usually, the lenders do not get concerned about the credit history, income, and affordability. They only want to know the property value that the borrower will use as security and what is currently owing on the property to ensure there is sufficient equity available.
Property in a bad condition
Property that the borrower offers might be in a bad state, derelict, or require some high restoration. In these scenarios, the bridging finance lenders will approve the fund, which many mortgage providers might reject.
Submit numerous properties as security
You can submit more than one property to a financial institution for bridging finance as collateral and security. It can be a first or second mortgage or an amalgamation of both. For instance, while buying a property, you need to raise the complete amount. Bridging funding proves to be much more beneficial in these cases.
Put the Borrower in a Strong Position to Negotiate a Property
If you have the support of bridging finance, you can negotiate with the seller of a property with the confidence of knowing that funding is approved and available.
Uses of Bridging Finance
A borrower can use bridging business loans in New Zealand for different reasons, which are as follows.
Certainty when purchasing property
When the buying of a property gets funded from the proceeds of another property sale, sometimes it cannot get completed even before or after the purchase. In this case short-term funding is necessary for bridging the gap for the purchase. After the deal gets complete, the borrower repays the bridging funds from the sale of the property.
Bridging loans can also replace the current funding, which is approaching its term-end. It is one of the best alternatives for extending the loan term or releasing additional funds.
Purchasing at auction
If you win a property at the auction, you have to pay at least a 10% deposit on that particular day, and the remaining amount has to be paid within 1 – 2 months. Bridging funds can assist you in purchasing valuable properties at an auction as the funding gets approved without difficulty within the specified time frame.
Solve the problem of cash flow for a short period
The problems of cash flow can reduce productivity while running a company. For instance, a traditional bank may consider an overdraft facility, which will take time. The business owners will run late in paying the wages and invoices. But with the help of bridging finance, there is no such problem as this type of loan gets approved with ease and solves the cash flow problem within the company.
It is now clear that although bridging funding gets primarily used for property purchase, it also assists in various other purposes. It is now widely used for an worthwhile business purpose providing you have sufficient equity in real estate.