Raising capital as a small business can be tricky, particularly at a time when the banks are reining back their lending, retracting overdraft facilities and asking for loans to be repaid.
Below we take a look at bridging loans for small businesses and the ways in which you might utilise a bridging loan as an alternative financial solution to a bank loan.
Small business bridging loan versus bank loan
Essentially, comparing a bank loan with a bridging loan is rather like comparing apples and oranges; however, bridging loans can be useful on occasions when you might think a bank loan is the only option.
Firstly, be very clear that a bridging loan is a short-term financial product and will need to be paid off in a timeframe between six months to two years, whereas bank loans can be an ongoing facility. However, if you need an injection of cash and have a tightly structured exit strategy you can use a bridging loan to your advantage.
Benefits of a bridging loan
- Bridging loans allow you to access funds quickly (within 24 hours in some cases)
- Interest can be paid monthly or can be ‘rolled up’ into the loan
- There are unlikely to be early repayment charges because the loan is over a short period
- Bridging loans can be secured on more than one property
Uses of a bridging loan for a small business
If you have never previously come across bridging loans as a small business but you are faced with any of the following circumstances, contact our team to discuss if a bridging loan could be a useful solution for you:
- Redevelop business premises
- Raise capital to invest in stock
- Buy premises for a new business
- Consolidate debts before starting a new business
- Fund the launch of a new part of the business
- Increase cash flow over a short term
- Avoid factoring invoices
Do bear in mind that all bridging loans are secured, so you must have assets available against which you can borrow, and whilst a bridging loan can be useful to manage an ad-hoc cash flow issue, it is not suitable for long term and repeated cash flow problems.
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