Business Bridging Loans Help Small Business Success
Bridging finance has been in the market since the early 1960s. Back then it was only offered as a way to buy and sell property and bridge the gap between when one property was being purchased and another one sold.
However things have changed, bridging finance has evolved and has been made available to business owners across all types of industries, such as automotive, medical and dental, even in accounting and law. Nowadays, even small business lenders already offer business bridging loans to customers who would prefer them to other types of business loans available.
So how do business bridging loans work for the business owner?
A business bridging loan is a type of short-term business loan that helps “bridge” the funding needed by the business owner until he or she finds a more permanent source of funding.
What are some of the instances when your business might need bridging finance?
- The business needs to meet a strict deadline in order not to miss a big business opportunity. This opportunity could come in the form of the acquisition of new equipment that was already signed for but enough funding from the business available for the purchase from cash flow.
- There may also be important business obligations that need to be settled and met so as not to disrupt business operations. Examples could be payment of employees’ salaries, payment of payables due to creditors or suppliers, or an immediate need to repair a piece of equipment that is vital in the business operations.
A business bridging loan is normally secured against a fixed asset which is usually the real property owned by the business or the business owner. Interest rates for business bridging loans are also higher compared to other loans and are capitalised and paid when the loan reaches its maturity. What is good about availing of a business bridging loan is that it is quick and easy to apply for it.
So why would a small business want to avail of a business bridging loan if there will be a bigger impact on the financial capabilities of a business due to high-interest rates?
Business bridging loans are quick and easy to apply for. Online facilities have been made available to business owners to lodge their loan applications and with very minimal documentary requirements, approval is easy and the loan proceeds are transferred to your bank account within a day.
Another good thing about business bridging loans for business owners is the fact that credit ratings and scores are not the sole basis of assessing a loan application. With most banks and lending institutions, they investigate and create hits on your credit score ratings and whenever this happens, the credit score readily goes down further. Loans are not usually granted when the credit score takes one hit after the other in the hopes of being granted a loan for the business. A business owner or borrower may be able to get a business bridging loan even when his or her credit rating is not so great. The collateral security will supplement any unfavourable credit score of the business or the business owner.
There are two kinds of business bridging loans that can help the business owner in filling immediate financial gaps in its business operations. Bridging business loans are those that have a specific end date that is agreed between the small business lender and the business. It could be one month to six months or even up to a full year, depending on the terms and conditions of the small business lender who granted the loan.
Business bridging loans are not meant to be structured over a long-term repayment schedules because it is likely that the monthly interest rates for the duration of the business bridging loan can not be sustained for a long period of time. They are designed to allow access to cash quickly for the business but to be repaid within a very short period of time, this is known as an exit strategy. The exit can be from sale of an asset or a refinance as an example.
Bridging finance will buy the business owner some time to look for a more permanent source of funding. Although there may be lending companies that are flexible enough to extend repayment terms, the business owner should be mindful of the impact to business’s cash flow if extended for too long. Business bridging loans are available for the business’s interim cash needs, and this should not be the main source of the business operations’ funding in the long term.
Taking out business bridging loans are best suited for those cash flow interruptions that are merely temporary and are short-term in nature. The business owner should still plan and effectively strategize the financial needs of the business and make necessary adjustments to the business operations after the business bridging loan has been repaid. As mentioned earlier, business bridging loans buy the business owner time to look for more permanent sources of funding.
When used wisely, business bridging loans are extremely helpful to the business owner and its business operations. Aside from it being one of the quickest ways to address the business’s financial concerns, small business lenders will not require financials of your business and that of the business owner. Small business lenders have made it more convenient for business owners to do quick fixes on the business’s short-term cash flow concerns by making business bridging loans available for their use. Business owners are fortunate to have these business bridging loans available to them, and they should always be considered for their business’s immediate funding needs.