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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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.
