How To Get A Business Bridging Loan

07-September-2019 19:38
in Commercial
by Admin

As a business if you are looking to complete any commercial transaction you will need readily available finance. Unless you are willing to invest a potentially large percentage of your own capital, it is likely that you will need to apply for additional funding to complete the transaction.

Fast available finance can make the difference in running a successful business. A business bridging loan can provide a short term solution where is a funding gap. This is particularly the case when buying or renovating new premises and you need fast finance to secure the deal.

What is bridging finance?

A bridging loan is a fast, short term type of finance that may be used to ‘bridge’ the gap in funding before a more permanent financial solution can be secured.

Who can use bridging finance?

Bridging finance can be used by individuals, limited companies, sole traders, partnerships and trusts.

Commercial bridging loans for businesses

Whether you own a small business or you are a head of a large company, at one stage or another cash flow issues are inevitable.

In order to minimise the effect of a shortage of finance on your business you need to act fast.

Securing business finance from a traditional lender may be challenging, as high street banks review the business’ past performance. This means that the applicant will have to provide full details of their profit loss accounts for the previous years of business, with no guarantee that an application will be successful.

Traditional lenders also put applicants through a rigorous financial stress test to ensure the applicant can afford the loan repayments.

Unlike traditional lenders, bridging loan providers will focus on the business’ ability to repay the loan, not their past performance. What is key to this finance is the asset being used and the exit strategy. Typically property and land is used for bridge finance however in some cases other business assets can be used as security.

A bridging lender will want to know how you intend to repay the loan. With property the normal exit is either sale of an existing property or using a commercial mortgage as a repayment vehicle.

Commercial bridging loans may be suitable for:

  • Investment in a business
  • Development of a business owned property
  • Overcoming financial difficulties
  • Taking advantage of an attractive opportunity
  • Buying property at auction
  • Business tax bill
  • Working capital for your business
  • Refinance of maturing commercial debt

What is the process for getting a business bridging loan?

As a business approaching your business bank account provider may seem like a good option. However when finance is required within a short space of time, a traditional high street bank may not be the best way to source the funding required.

Not all high street banks provide business bridging finance and those that do often will often take a forensic view of your business finances as part of their due diligence in assessing their appetite to lend. This can take time which is not always on your side.

This is where using a specialist finance broker can really make a difference. A good broker will have access to a range of lenders many of whom are specialists in their field. Business bridging finance covers a range of business sectors and having a lender who understands your business field can help in getting competitive structured finance in place.

Many business finance lenders take a pragmatic approach to commercial finance and will want to understand the story behind why you need funds. A key question is an understanding of your exit plan. An exit plan is the strategy that a borrower intends to use to repay the loan. Bridging loan providers need to see that an exit plan is in place to ensure that the loan is repaid in full by the end of the term of finance.

If the story adds up which normally requires a face to face meeting and the security that finance is to be charged on are in line with valuation expectations then bridge funding can often be organised very quickly.

Case Study:

A business wanted to purchase an office block in Surrey which fell within a “permitted development” area. Since May 2103 planning requirements were relaxed for office buildings for conversion into residential use. The business wanted to the office into 27 self-contained flats and had applied for consent from the local authority.

 The bridging lender took a view that planning consent was highly likely and provided 50% of the £2.8 million required. Additional finance was found from a mezzanine lender which left 10% for the business to fund from its own sources. Once the valuation the property was complete the legals were completed within a week and funds were available within 14 working days. This meant the business was able to proceed with the project with minimal of its own capital tied up.

Commercial bridging loan features

Commercial bridging loans are a popular way to source finance to complete a commercial transaction because they can provide:

  • Finance from £50,000 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

How to get a commercial bridging loan

At Clifton Private Finance, we pride ourselves on our ability to provide creative financial solutions.

To find out more about commercial bridging loans, fill out our contact form below or call us now on 0117 959 5094.

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