Bridging your funding gaps with bridging loans

As you expand your business, you’re sure to encounter times when extra short-term funding is needed. Bridging loans provide a quick means for obtaining working capital for purchasing property or covering immediate business expenses. With repayment terms of 12 months or less, these short-term loans are an excellent option for access to on-demand cash while you await long-term funding, for example, a commercial mortgage. 

What is a bridging loan?

A bridging loan is a type of business loan similar to secured loan used to cover gaps in funding. 

When growing a business, sometimes your working capital doesn’t always keep up with your financial needs, especially when making major investments or purchases. Bridging loans help organisations like yours fund crucial activities for expanding business, such as:

• Buying property at auction or land for development

• Investing in commercial property 

• Renovating existing property

• Moving to a new property

How do bridging loans work? 

Bridging loans are typically secured against property, allowing quick access to funds. 

Though best known for their use in property-related transactions, bridging loans can be a vital resource for any business in need of on-demand funding. 

Additional uses of bridging loans for businesses include:

• Boosting working capital quickly

• Financing time-sensitive inventory deals

• Funding operational costs (like payroll, inventory, rent, and utilities)

Borrowers funding property investments can be eligible for loans between £35,000 and £250 million. In most cases, you can borrow up to a loan-to-value (LTV) ratio of 75% of the value of the property. 

Types of bridging loans

• Residential bridging loans: Aids in purchasing residential property or developing residential land in the interim before selling an existing residential property. 

• Commercial bridging loans: Provides funds for purchasing commercial property (such as shops, offices, retail space, etc.) and for refinancing commercial real estate. 

• IPO bridging loans: Used to cover the expenses of taking a company public until Initial Public Offering (IPO proceeds) become available. 

• Open vs. closed bridging loans: Closed loans have fixed repayment dates, while open loans have no set repayment dates and must be paid in full within a set period (typically a year).   

• First vs. second charge bridging loans: Properties without other finance secured against them are eligible for first charge loans, while properties with existing loans against them qualify for second charge loans.  

• Fixed vs. variable bridging loans: Bridging loan interest rates can be fixed or variable. Fixed rates ensure predictable repayment amounts, while variable rates make the amount fluctuate. 

What do bridging loans cost? 

Though bridging loans offer quick access to funds for growing businesses, they also come with higher costs, making timely repayments critical. These costs can include:

• Higher monthly interest rates (upwards of 20% or more)

• Additional arrangement and exit fees

• Potential risks to your property if repayment is not met

Who Can Apply for a Bridging Loan?

Eligibility for bridging loans often depends on the strength of your “exit plan” – aka, your strategy for repaying the loan and interest at the end of the lending term.

A solid exit plan must show lenders you have a clear path for moving on to a more permanent source of financing, such as via a commercial mortgage or funds coming in from an unfinalised sale of property.

Examples of businesses that commonly leverage bridging loans include:

• Property Developers: Bridging loans simplify purchasing land, financing construction projects, or renovating properties before resale, helping developers seize lucrative opportunities swiftly.

• Real Estate Investors: Investors can use bridging loans to secure properties at auctions or take advantage of time-sensitive deals, allowing them to expand their portfolios and maximise returns.

• Small Businesses & Startups: Startups or small businesses often require immediate capital for various purposes like inventory purchases, equipment acquisition, or overcoming cash flow gaps. 

• Entrepreneurs: Bridging loans can assist entrepreneurs in bridging financial gaps during expansion phases, launching new products, or securing working capital. 

What are the benefits of bridging loans? 

Bridging loans can offer your business advantages for short-term funding, ensuring you have access to the working capital you need, when you need it.

These advantages include:

• Flexibility: Bridging loans provide flexible financing terms, accommodating a wide range of different business situations (such as property investments and renovations). 

• Speed: With a bridging loan, you gain rapid access to funds — most bridging loans applications are approved and distributed within 24 to 48 hours. 

• High Limits: Thanks to being secured against an asset (i.e. property), bridging loans can provide your business with larger sums of money than other lending options. 

What are some of the possible risks associated with bridging loans?

Though bridging loans offer quick access to funds for growing businesses, they also come with their own risks, including the risk of foreclosure or execution over a secured property, making timely repayments critical. They come with higher costs too, which can include:

• Higher monthly interest rates (upwards of 20% or more)

• Additional arrangement and early exit fees

• Potential risks to your property if repayment is not met

How to obtain a commercial bridging loan

Funding Options by Tide provides you with quick and simple access to bridging loan options. Just tell us how much you need, and we’ll match you with a range of different opportunities comparing loans across 120+ lenders. 

Find a bridging loan

Short-term funding can lead to financial difficulty and is not suitable for everyone. Contact us for support if you ever face difficulties making your payments. Warning: Late payment can cause you serious money problems. For help, go to moneyhelper.org.uk

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed.