Business Bridging Loans Help Small Business Success
Bridging finance has been in the market since the early 1960s. Back then it was only offered to known customers of high street banks and other building societies.
For the past several decades, bridging finance has evolved and has been made available to owners across all types of enterprises and industries, such as but not limited to aviation, automotive, medical and dental, even in accounting and law. Nowadays, even small business lenders already offer business bridging loans to customers who would prefer to avail of it than other types of business loans available.
So how do business bridging loans work for the business owner?
Coining from the term, 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 operations failed at some point.
- 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 vendors 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 tied and 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 compounded 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 to. Online facilities have been made available to business owners to lodge their loan applications and with very minimal documentary requirements, approval is easily handed, 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 granting the loan. 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 unfavorable 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 in immediate financial gaps in its business operations. Closed bridging business loans are those that have a specific end date that is agreed between the small business lender and the business. The other kind would be those open business bridging loans that do not have a pre-set exit or end date. The repayment period of the loan is to be pre-specified at the onset of the grant and the full payment for the business bridging loan together with the interest incurred must be done on that pre-determined date. It could be five months or 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 granted long-term repayment schedules because it is highly likely that the compounded interest rates for the duration of the business bridging loan will do more harm than good in the business’s cash flow and its operations in the long run. This is the reason why business owners should look deeply into the business’s financials and review the aspects of the cash flow that will be affected by the loan.
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 have a better mindset on not allowing bridging finance options to further burden the business’s cash flow and operations. 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.
Availing of 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 availed of has been repaid. As mentioned earlier, business bridging loans buy the business owner time to look for more permanent sources of funding. The business owner would not want to further burden the business financially by taking out loans and allocate available funds to mere repayments and interest rates.
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 have to burden you with presenting the 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 and entrepreneurs are fortunate to have these business bridging loans available to them, and they should be able to conscientiously use them for their business’s immediate funding needs.