As more bridging loan lenders enter the market, the cost of borrowing
short-term capital has fallen dramatically. This has allowed firms to
borrow to buy stock, ease cashflow, expand and a host of other things.
Put simply, a bridging loan is a way to give individuals access to
credit easily and quickly, by using assets such as personal or
commercial property to release equity.
Primarily used in the property market, bridging finance can prevent
buyer chains collapsing when other financial arrangements were in place.
In the literal sense, it allows you to bridge the gap between shortages
in capital. The majority of bridging financiers function solely online,
allowing clients based anywhere to find them easily, making the market
open and competitive.
The speed at which cash can arrive in your account is the greatest
advantage of bridging loans, often being a very personal service that
takes a matter of days. They will also be sure that bridging finance is
the best option for you, because lenders want to be sure they will get
their money back!
You can expect to pay an arranging fee, which covers all of the
checks the financer has to make, such as application, legal and
valuation costs. Lenders will offer varying rates of interest dependant
on your circumstances (usually between 1 and 2% per month). However, if
you have a lot of value in your assets and are not classed as high risk,
you could see interest rates as low as 0.5% a month.
A good bridging lender will find out exactly what you are spending
the capital on. They will then assess the resource that you are
borrowing against and send an independent surveyor to value the asset.
This will make up the loan to value (LTV) ratio that you receive, which
can be anywhere between 40 and 80%.
Bridging finance is for short periods of time and can become an
expensive option if you do not replace the bridge with a long-term
financial option. This could be selling other assets, streamlining your
business or refinancing with another loan.
If your business needs to raise money quickly to buy stock to meet a
surge in demand, a bridging loan may be a perfect way to quickly get the
money you need. However, if you are experiencing cashflow problems due
to a high wage bill, unless you put a restructure in place, allowing
funds to be available within months, a bank overdraft or other financing
means may be more beneficial for you.
Overall bridging loans may not be for every business need, especially
if you do not know how you can pay back the loan. However, in times of
cashflow crisis, where you have assets with equity, they can offer you
the breathing space to put longer-term financial options in place.
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