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How Bridge Loans can be extremely important in aiding business growth?

    Bridge Direct     0

The success of any business revolves around maintaining a healthy cash flow in order to ensure that projects and product development remain uninterrupted. A healthy cash flow can also help when new ventures or projects come along at an unexpected times. Many businesses have had to let possible ideas, projects and business ventures sit on the side line for too long, often becoming unprofitable and wasted due to the inability to act on them immediately. For example, this could range from missing out on a property at auction to a rival company beating you to the chase with a new innovative product. 

This is where bridge loans can come in. Bridge loans are great source of instant finance for business owners, filling the financial gaps when they need it the most. Many banks can take weeks, or even months to give the go ahead on a bank loan, whereas with a bridge loan, capital can be released quickly, in some cases in the same day of application.

What are Bridge Loans and should we use them?

Bridge loans are a temporary short term secured finance option. Many businesses opt for this type of bridging solution until the availability of longer term funding such a longer term bank loan or mortgage become available. However, it is entirely possible, to utilize a bridge loan to help a business in the short term without then having to transfer across to and be tied into a long term mortgage. By using a bridge loan for example, when awaiting a large customer invoice payment, a business can free to the funds quickly and easily ensure business continuity whilst chasing their payment. Once these funds are received they can then repay the bridge in full, which is a great alternative to looking at invoice factoring, and foregoing a set percentage to all invoices, all the time. 

Bridge loan repayment duration generally range from 1 to 12 months, however, there is normally the option to renegotiate a new deal or extension to the bridging term. As with all short-term finance, due the higher risk being involved, interest rates are generally a little bit higher on these loans, for example when compared to a long term bank loan or mortgage. However, they do not tie the borrower into a long term monthly repayment scheme with penalties for early settlement, nor do they incur the same kind of due diligence and checks.

Bridging loans have been popular with property developers over the years. Due to the way the funds can be quickly released, it makes it ideal for buying properties at auction with the aim to flip the property quickly, either on a buy-to-sell or a buy-to-let. By using a bridge loan the borrower can secure highly desirable properties, well below market value, making a healthy profit in a short period of time.

However, bridge loans are not exclusively limited to property developers. A bridge loan can be applied to any business application, and in recent years these loans have become increasingly popular amongst commercial business owners.

Advantages of a Bridge Loan for commercial requirements

Any business can fail even successfully ones if cash flow isn’t maintained. Due to the recent economic crisis many banks and building societies have become more reluctant to lending out their money. This had led to a massive increase in loan and mortgage rejections. By using bridge loans many business forego the need to even consider on now and will use a bridge loan to help them overcome any financial difficulties.

As commercial bridge loans are a secured loan they are much simpler to draw up and don’t require extensive credit checks or due diligence. This means that as long as enough equity is held to secure the loan amount, you will almost be certain of being approved for your loan. This includes situations involving bad or adverse credit history, and should not affect you application!

There any numerous advantages to taking out a bridge loans, below are just a few of the more popular reasons;

Maintaining high quality staff?

The strength of any organization depends on their employees. Many firm owners will look to prioritize their staff salaries when finances are tight and this makes sense. The workforce is key to the businesses success and if staff become aware of any financial difficulties then this will affect morale and productivity. In this kind of scenario, making use of a bridge loan for a temporary period to pay the salaries will mean staff remain unaware of any potential situations no matter how minimal they may be.

Purchasing equipment and resources

Making sure the businesses equipment is up to scratch is an important consideration for any successful project. If the equipment is not running to its full capacity or up to the job, it doesn’t matter how productive your staff are, and can have a knock on effect on morale and even staff welfare. In the long term this could potentially affect the company’s reputation in the market. In this kind of scenario a bridge loan could open up the opportunities to ensuring the most efficient and up to date equipment is used throughout the business.

Looking to expand business services

Expanding your business can be a risky, but often necessary requirement. Unless businesses are trying to stay one step ahead of the competition it can be only a matter of time before a competitor steps in to try and take over an area of your market. By using a bridge loan, many business can use this capital to build on the businesses success and take their products and services to new heights.

Launching new products or projects

As is with the case of expanding a business, launching new products is another risk that often causes business to fail. More often than not new products fail due to insufficient funding, over running costs and lack of product testing. Recently, many businesses have been turning to bridge loans to help these new products succeed form the outset. By topping up the project funding with bridge loans they can help come to terms with the new agile world of product development and ensure product success at the highest level.

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