Bridging Finance For Business

Find out more about what bridging finance is and whether it's right for your business here.

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, updated on September 21st, 2023       

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How does business bridging finance work?

Business bridging finance is a type of loan designed for businesses which are in the process of applying, or qualifying, for more substantial financing. This can be useful to keep on top of expenses for a short period before the business loan you’re looking to take out can be approved, as your business may otherwise struggle to keep up with the financial demands placed on it. These loans are different in terms of their structure compared to how a regular business loan works.

In many cases, these loans are secured, which mean your business will be required to put up an asset, such as equipment or machinery (or equity in residential or commercial property you own) as collateral for the loan. These loans are generally available from as short a term as two weeks up to a maximum of one year in some cases and with borrowing ranges of $5,000 to well over $1 million.

They come in two different forms: open bridging loans and closed bridging loans. While closed bridging loans come with a specified end date at which the debt is to be fully repaid (like most loans), open bridging loans are provided with a set window, such as three months, in which you can repay the loan in full. This means you could repay the loan in its entirety after three weeks or on the final day of the third month.

When might I need to take out a bridging loan for my business?

There are a number of key reasons why you might find yourself in a position as an operator where bridging finance is necessary. Some of these can include:

Purchasing or developing property

If you’re in the business of property development, the process of gaining planning approval from a local council may be a lengthy one. Because of this, you might wish to take out a bridging loan to cover the cost of purchasing property or land prior to receiving the green light and once you do, your business can be approved for a larger loan at a lower interest rate with more favourable repayment conditions. This may also be the case if you need more time to gather the business financials required to take out a commercial property loan.

Covering short debtor periods

Many businesses find themselves in a position where the period within which they have to pay their suppliers is shorter than the time it takes to sell their product or service. Because of this, a commercial bridging loan can help your business manage these debts and pay them on time whilst still taking the same time to receive payment for their product.

Paying for emergency expenses

Finally, you might simply need a business bridging loan to cover your business for sudden, unexpected and costly expenses which it may not otherwise be able to cope with. For instance, if there’s an accident in your restaurant which ruins thousands of dollars’ worth of equipment and you need to source replacements effective immediately, a short-term bridging finance loan could be an option for your business.

Can I take out an unsecured business loan instead?

Yes – these days, it’s easier than ever to source a fast and simple business loan without security. Unsecured business loans can be approved and funded within just three hours and grant you access to up to $500,000 over longer repayment terms of up to five years. Similarly, these can be used for anything you like, whether that be to finance the fitting out of your front of house or even to purchase an existing business.

These loans are also more common than bridging loans, with a greater number of lenders willing to offer them to businesses, and are often considered a lower-risk loan. The result of this is made clear in the expanded borrowing terms, which facilitate more comfortable repayments from your business, and the lower interest rates and fees available to businesses.

Crucially, though, these loans come without the need to provide any asset collateral for the loan, which often isn’t the case for bridging loans. Also, many come without a penalty for paying out the loan early, meaning you can potentially turn them around just as quickly as a specialist bridging loan.

The pros and cons of business bridging finance

PROS

Available to businesses with bad credit

Even if your business has had its struggles with credit in the past, it can be approved for financing when it otherwise may not have been.

Large loan amounts

Because these loans are secured, your business can be given access to larger loan amounts with which to cover its expenses.

Simple application process

You can apply for your loan in minutes and have it approved within a matter of days, giving you the ability to utilise your business’ funds quickly.

CONS

High interest rates

Because these loans are considered a higher-risk investment by lenders, they tend to come with higher interest rates and associated fees.

Security requirements

If your business is a small one without any major assets to serve as security, you likely won’t be able to qualify for a bridging loan in the first place.

Restricted repayment terms

Your business can only take up to a maximum of one year to repay a commercial bridging loan, meaning it may not be as comfortable in managing instalments.

Slower than unsecured loans

Even though they’re relatively fast to process, they’re still not as speedy as some unsecured loans due to the need to assess your collateral.

Common questions about bridging finance for business

Can I pay out a bridging loan early?

Yes – as mentioned, open bridging loans allow you to repay your business debt as soon as you’d like, provided it falls within the set timeframe. However, you may find that a fee is charged if you pay out your closed bridging loan ahead of schedule. This may not be the case for all lenders, though, so you should bear this in mind when considering your options.

What are the fees charged on bridging finance for my business?

There are several fees which can apply to your business bridging finance deal. The most significant of these is likely to be an establishment fee, which can cost up to 3% of your business’ loan amount. Additionally, your business may be subject to monthly fees or an annual charge, as well as closing costs at the conclusion of the loan.

Do all bridging loans require payment in instalments?

No – you may encounter some bridging finance offers which only require you to make a lump-sum payment at the conclusion of the term, rather than in weekly or monthly instalments. Whilst this may be more convenient for your business, it’s important to note that it may end up costing more in interest due to the fact that your principal won’t be given the chance to reduce. Some bridging loans also come with compounding interest, so paying your loan out at the end could also lead to much steeper interest charges.

Which factors affect my business’ borrowing power?

There are several factors which can impact the amount your business is able to borrow, such as its credit score and history, monthly or annual revenue generation, consistency of turnover, time in operation and the nature and value of your security, among others. It’s important to note that each lender will have a different process for determining how much your business is eligible to borrow.

Which documents will I need to apply for bridging finance for my business?

In most cases, the same documentation requirements will apply to bridging loans as they do for any other business loan. This includes:

  • Your photo ID
  • Your business’ ABN/ACN and GST registration
  • Business banking details
  • Record of costs such as rent
  • Information on the asset used as security
  • Business financials for some larger loans, including profit and loss statements, balance sheets, ATO ICA information, tax returns and a detailed business plan which projects future revenue
Will I need to pay a deposit as part of my bridging loan finance deal?

Maybe – some business lenders will set their LVR requirements for secured loans at under 100%, such as 80% to 90%. However, this isn’t common and you may find your business is able to borrow up to and over 100% of the value of the expense you’re looking to cover. Unsecured business loans come without any deposit requirements, as their value isn’t tied to any particular asset, so you can borrow as much as your business is considered capable of comfortably repaying.

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