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Bridging finance

Bridging finance 750 400 Lorna Slee

Bridging finance is a type of short-term loan. It is often associated with property development but is actually a diverse solution for bridging any type of financial gap. It has multiple uses where business funding is needed for around 12 to 18 months before a more longer-term solution can be made available.

The key difference between a normal loan and a bridging loan is time; the time it takes for the funding to be agreed and the duration of the loan. A typical application for a loan can often be quite time consuming due to the application process involved and necessary funding arrangements. The bridging solution was created to simplify the process and enable a business to gain access to funds on a relatively quick basis.

Let’s explore some of the typical uses for bridging finance

  • If we look at the typical property scenario where a bridging loan is used. It is not deployed to fund an entire development site, instead it allows developers to bridge the financial gap of selling all the properties from the first site whilst also being able to start work on the next.
  • Manufacturers can also utilise bridging loans. We recently assisted a business who was struggling to purchase some machinery from Italy. Unfortunately, due to Brexit, lenders are now less likely to lend money for machinery bought outside of the UK to then be used in the UK. At the same time manufacturers in other countries want their money up front before releasing the goods. In this situation a bridging finance facility was set-up so that the machinery could be purchased immediately and then shipped to the UK. Once the machine had been set-up and in operation an asset finance deal focussing on hire purchase was set-up to then repay the bridging finance and establish a monthly payment plan with the manufacturer.
  • A restaurant looking to relocate to larger premises found restrictions with financing the move, simply because of market conditions as a result of the COVID pandemic. To facilitate the move, a bridging agreement was established which allowed the new facility to be fully fitted with state-of-the-art equipment and the move to commence. After a short period, the restaurant owners were then able to replace the bridging loan with a commercial mortgage.
  • Another example is a commercial property landlord who was looking for £600K to purchase a new building which would eventually be used as a HMO (home in multiple occupation). Thanks to bridging finance the property was purchased, work was undertaken on its development and the bridging loan was repaid on completion of the work.

In summary, bridging finance is the same as any other loan; a lender will fund an agreed amount and will charge a fixed interest rate with repayments being made over an agreed term (generally 12 to 18 months). There are also two options available. The first is a closed bridging loan which basically means there is a set date when the money needs to be repaid by. The second option is an open bridging loan which basically offers some time flexibility over the repayment of the money.

If you have any questions or need some help with bridging finance, then our team would be delighted to help. Please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.

We can provide you with tailored business finance solutions.

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