Using A Bridging Loan To Fix A Business Cash Flow Problem

05-October-2017

05-October-2017 14:06

in Bridging

by Jennifer Stevenson

Whether you are an owner of a small business or a head of a large company, at one stage or another you will experience cash flow challenges. When faced with cash flow issues you may need to access additional funding to minimise the adverse short term effects on your business.

Cash flow issues

There are many ways that businesses can get into cash flow problems:

Increased monthly outgoings
VAT, PAYE or Corporation Tax payment is due (corporation tax loans)
Not chasing payment of invoices
Permitting customers to have too much credit
Going over budget with investments
Failing to prepare for seasonal demand
Overtrading
A surplus of stock

If you have cash flow issues with your business or you need more working capital in order to expand, you may want to explore your bridging loan options.

Business bridging loan

Business bridging loans are a type of finance that provides fast, short term funding, which can temporarily resolve a cash flow issue until a more permanent solution is available.

Business bridging loans are a popular way to plug the gap between finances because they can provide:

Finance from £25,000 to £25 million
LTV up to 75% (up to 100% with additional security)
Term of finance from 1 to 36 months
Fast turnaround, securing finance within 7 working days is possible
Competitive interest rates
Funding with no upper age limit

A business bridging loan is a kind of finance that is secured against an asset owned by the business. Generally, businesses use property or land that they own as security for the loan. In addition, businesses have been known to use other assets such as their own stocks and shares.

You may wish to consider how you want to secure your business bridging loan before applying.

Why use a business bridging loan

Past performance and bad credit do not matter

Businesses may prefer to use bridging loans to resolve cash flow issues, as bridging loans tend to be more flexible and straightforward than loans from a traditional lender.

Typically, traditional lenders will review the business’ past performance and income to assess whether they are prepared to provide the finance. Bridging loan lenders do not require an in-depth review of the business’ incomings and outgoings when considering an application.

This means that if your business has underperformed for a quarter or it has a bad credit history, you can still access the finance you need.

Flexible interest payments

One potential advantage of a business bridging loan is that they usually come with the option to ‘roll-up’ interest to pay at the end of the term of finance.

This may be helpful if you are experiencing cash flow issues, as it allows you to avoid monthly interest payments and use your loan for keeping your business ticking over.

Exit plan

Another reason why a business bridging loan may be the right choice for you is that bridging loan lenders will insist on a viable exit plan in place before providing the finance.

An exit plan is simply the method that a business intends to use to repay the loan at the end of the agreed term. Businesses may find this feature reassuring, as it ensures that they have a strategy to repay the loan.

An example of an exit plan is where a business uses their following months’ profits to repay the loan or where they free up some of their capital that was not previously available.

Before applying for a business bridging loan you should give some thought as to how you intend to repay the loan, having an exit plan in place in advance can minimise delays.

No early repayment fees

Business bridging loans may be an attractive option, as unlike the majority of the loans from traditional lenders, bridging loan lenders do not charge early repayment fees.

This may be useful for businesses with cash flow issues because they will not incur any additional fees in the event that they may free up some of their capital earlier than expected.

This means that if you are able to pay the business bridging loan before the end of the term of finance you will not incur any penal costs.

The cost of using a business bridging loan

Bridging loans may provide an opportunity to resolve cash flow problems but for any business, it is important to understand the overall costs of getting finance in place.

Interest

Although business bridging loans may provide swift and convenient finance, they usually charge slightly higher interest than traditional loans.

The rate of interest you pay will depend on your business and the security used - rates will vary from lender to lender.

How to get a business bridging loan

As a professional broker, Clifton Private Finance can find the best bridging loan for your set of circumstances.

Through strong links with private banks, specialist lenders, family offices and wealth managers, Clifton Private Finance can access financial solutions that are not available on the high street.