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There can be confusion around the terms “bridging loan” and “bridging finance” among people and businesses exploring their funding options. Bridging finance can be a great means of support to your business, and is worth exploring if you need to secure a temporary means of finance.
Bridging finance typically comes in the form of a temporary loan. As the name suggests, these loans are used to “bridge” the gap between a purchase and securing the funds needed to do so. This type of finance can help get you from point A to B until you can pay off the loan in full or until you can secure more permanent financial support.
Using a bridging finance loan
These loans are most typically used to fund property-related developments, either for the purchase of a property or to make renovations to one. This is a type of property development finance and can be used for both residential and commercial purposes.
Bridging loans are great for funding certain renovations and refurbishments. As they can usually provide funds very quickly, this means you can get your project going quickly.
Often, businesses will use this means of finance to convert their properties into a stage whereby lenders are able to offer commercial mortgages. This is great for projects that are not yet developed enough to be eligible for a commercial mortgage, giving them the push they need to get to this stage.
Businesses can use a bridging loan for a number of different commercial purposes. It’s worth noting that this type of finance is only intended to be used short-term, and the business will need to have a clearly laid out exit plan. As a business owner, establishing an effective, detailed plan of how you intend to pay off the loan is vital in securing this financing in the first place.
Bridging finance versus other loan types
Bridging loans differ to other, more regular-term types of finance, as bridging finance is built as a short-term means of funding for specific purposes. More regular term loans, however, are used by businesses for more general commercial-related purposes.
One main difference which helps to distinguish a bridging loan from other commercial loan types is the speed at which the business can access funds. For general commercial finance, businesses can wait weeks for funds. Bridging loans, in comparison, can provide borrowers access to funds within a 24- to 48-hour timeframe.
Additional associated costs
Any and all additional costs associated with the loan will depend on the circumstances of the borrowing situation. Generally, an arrangement fee will be charged and as the name suggests, this fee is for the arrangement of the loan. Additionally, as with many products, there will be administration fees the borrower is expected to pay. The costs applied to a bridging finance loan will always depend on the lender you go for and the situation for which your business requires funding.