Bridging finance activity in the United Kingdom reached an all-time high in late 2019. Attracted by a simplified application processes and reduced overall borrowing costs, businesses and investors from all backgrounds embraced the benefits of short-term bridging finance but what are the most common commercial uses for bridging loans? As an alternative to more conventional funding options, what can a commercial bridging loan be used for?
As the name suggests, bridging finance is designed to bridge all types of financial ‘gaps’ when they occur. From a commercial perspective, this has brought diverse potential applications in a variety of scenarios.
Bridging finance can be used for almost any legal purpose whatsoever, though in a commercial context is routinely used in the following ways:
For any number of reasons, a business could suddenly find itself dealing with a cash flow shortage at the worst possible time. The inability to pay staff wages, outstanding invoices, overdue tax bills and so on, all calling for a quick and affordable cash injection.
A commercial bridging loan can be used to temporarily cover these kinds of unexpected outgoings, after which the full balance is repaid a few months later when the firm’s financial situation is more stable.
It is also not uncommon for a business to unexpectedly receive an exceptionally large order for the products and/or services it provides. In order to fulfil the order, additional funds may be needed to purchase the necessary equipment, pay staff wages etc.
As bridging finance can often be arranged within a matter of days, the business need not pass up the opportunity due to a gap in its finances or cash flow at the time.
Bridging finance is a popular option for the purchase of commercial property at auction. Full payment is usually required within four weeks of the date or sale, often rendering typical mortgages and property loans unviable.
In addition, bridging loans can often be used to fund the purchase of buildings considered ‘uninhabitable’ or ‘not fit for purpose’ for subsequent renovation. Both scenarios would be considered unacceptable by most conventional lenders.
Moving to new business premises (or expanding an existing commercial space) can bring any number of elevated short-term costs into consideration. Where a business needs to move or expand to improve its output, short-term performance issues may be encountered due to cash flow issues.
This is again where bridging finance can help, covering all of the firm’s immediate costs while the relocation or expansion project takes place. After which, the funds are repaid a few months down the line at a competitive rate of interest.
These are just a few of the most common examples of commercial bridging finance applications. As one of the most flexible, versatile and affordable short-term funding solutions available, bridging finance can offer a lifeline to commercial applicants in all types of time-critical scenarios.
For more information on any of the above or to discuss the potential applications of a commercial bridging loan in more detail, contact a member of the team at UK Property Finance today.