The bridging market continues to grow at an impressive rate with recent figures from West One revealing a 30 per cent increase in annual gross lending in the year to the end of June. Surpassing its previous record for annual lending, the market has achieved this growth through 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, not just as a means to purchase one property before selling another. Over the past few years, we have observed more and more businesses sourcing loans as a practical solution for raising capital quickly.
As with all short-term finance, bridging loans should be viewed as a stopgap method of raising cash for businesses, rather than a long-term financial solution. Making this clear to clients is key.
For companies, bridging loans are often (but not always) used as a way of aiding cashflow at times when an unforeseen circumstance means 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 bridging loans are often regarded as a last resort for businesses, they should not be viewed solely in this way. We are seeing more examples of companies utilising bridging as a source of start-up or expansion finance. Equally, cyclical businesses able to forecast periods of cashflow shortfalls are using loans to plan ahead for these periods and prepare funding in advance. However, while brokers should take advantage of this growing demand for bridging finance, it is important they remain responsible in ensuring that loans are used as a short-term finance solution and that borrowers have a solid exit plan in place to repay their loan.
It is no secret that APRs on bridging loans are higher than others but, because of their specialist nature, they may still be the best option for a business’s circumstances. I have been reflecting on the elements that businesses are particularly taking advantage of. The three features that benefit them the most are:
Speed: Few other loan facilities can be arranged as quickly as bridging loans. For businesses in particularly pressing financial situations, time may be of the essence.
Sizeable loans: Typical loan-to-values range up to 75 per cent, with no maximum loan amount. We are seeing many businesses choosing to increase their funding with the use of additional security to ensure they can secure the right amount of finance.
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’s other outgoings.
Short-term finance has 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 with long-term potential, as long as the loan is right for the client and they have a plan in place to repay it.