The bridging market continues to grow at an impressive rate, with recent figures from West One revealing a 30% increase in annual gross lending in the twelve months to the end of June. As we surpass the previous record for annual lending, we can see that the bridging market has achieved this growth through a diversification, as well as an expansion of its customer base.
Bridging loans are extremely flexible, and lenders’ continual product development and innovation has meant bridging finance can be used for a range of purposes, and not just as a means to purchase one property before selling another. Over the last few years we’ve observed that more and more businesses are sourcing bridging loans as a practical solution for raising capital quickly.
As with all short-term finance, bridging loans should be viewed as a stop-gap method of raising cash for businesses, rather than a long-term financial solution. Making this clear to clients is key as more businesses turn to bridging as an alternative source of finance.
For companies bridging loans are often, but not always, used as a way of aiding cash flow, at times when an unforeseen circumstance means that additional funding is needed to temporarily ‘bridge’ the gap. Instances where bridging loans are being used for business purposes include emergency costs, which may arise from unforeseen maintenance or repairs; operational costs to cope with unusually busy periods or complete a particular job; and other unexpected deficits such as late invoices and tax bills.
Although they often are, I don’t believe that bridging loans should be solely viewed as a last resort for businesses. We are seeing more examples of companies utilising bridging as a source of start-up or expansion finance. Equally, cyclical businesses that are able to forecast periods of cash flow shortfalls are using bridging loans to plan ahead for these periods and prepare funding in advance.
However, whilst brokers should take advantage of the growing demand for bridging finance for businesses, it’s important that they remain responsible in ensuring bridging loans are used as a short-term finance solution and that borrowers have a solid exit plan in place so that they can repay their loan.
It is no secret that APRs on bridging loans are higher than others, but because of their specialist nature, a bridging loan may be the best option for a business’ circumstances. I’ve been reflecting on the elements of bridging loans businesses are particularly taking advantage of, and the three features that benefit businesses the most are:
Speed – Few other loan facilities can be arranged as fast as bridging loans, and for businesses in particularly pressing financial situations, time may be of the essence
Sizeable loans – Typical loan-to-values (LTVs) range up to 75%, with no maximum loan amount, and we’re seeing many businesses are choosing to increase their funding with the use of additional security, to ensure they can secure the right amount of finance they need
Flexible payment options – Businesses have the option to roll up interest or have it retained by the lender on completion, so clients are comfortable organising payment terms to suit their business’ other outgoings
Short-term finance has now established itself as a viable funding option for a variety of business purposes and more SMEs are taking advantage of bridging loans’ flexibility to help support their operations. I see this as a trend that has long term potential, as long as the loan is right for the client and they have a plan in place to repay it.
By Lucy Hodge, Director, Vantage Finance