Business opportunities often appear suddenly – whether it’s the chance to buy out a competitor, purchase essential equipment, or expand into new markets.
When these moments arise, having quick access to funding can make all the difference between seizing or missing an opportunity. While traditional business loans serve their purpose, they aren’t always the fastest route to securing capital.
That’s where bridging finance comes in. This short-term funding option helps business owners act swiftly when time matters most.
Bridging Finance for Business
Bridging finance is a short-term loan secured against property or assets that provides quick access to capital.
For business purposes, these loans help to cover the gap between an immediate need for funds and a longer-term financial solution.
Think of bridging finance as a temporary funding bridge.
You might need it to buy a business before selling another asset, purchase stock before a peak trading period, or secure premises while waiting for long-term funding to come through. These loans are temporary, usually lasting from 3 months to 2 years.
The main benefit of business bridging finance is speed – you can often access funds within days rather than the weeks or months needed for traditional business loans. This makes it really useful when you need to move quickly on business opportunities.
For business acquisitions, bridging finance works differently from standard business loans.
Instead of focusing on your business plan and trading history, lenders look more at the assets you’re offering as security and your strategy for repaying the loan (known as your exit strategy).
When to Consider Bridging Finance
The main reason for using bridging is generally speed and flexibility. This comes in helpful when you need to act fast on business opportunities.
Common scenarios include:
- Buying a business where the seller needs a quick sale. Maybe they’re retiring or need to sell for personal reasons. Having fast access to funds could help you secure a better purchase price.
- Purchasing stock or equipment at short notice. Perhaps a supplier’s offering a one-time deal on bulk inventory, or you’ve found essential equipment at auction.
- Taking over a competitor’s business. If they’re selling due to retirement or other circumstances, being able to move quickly could give you an advantage over other buyers.
- Sometimes businesses need bridging finance to manage cash flow during growth phases. You might be expanding into new premises and need to pay for fit-out costs before your long-term funding comes through.
Remember, bridging finance isn’t just for emergency situations – many business owners use it strategically as part of their growth plans.
Let’s talk bridging loans!
How Business Bridging Finance Works
Let’s break down the mechanics of business bridging loans.
These loans are secured against property or assets – usually commercial property, but sometimes residential property or other high-value assets.
Loan Structure
The amount you can borrow depends on the value of your security property or asset.
Most lenders will consider lending up to 75% of the property’s value, though this varies based on circumstances and the type of security offered.
You’ll have several options for managing interest payments:
- Monthly payments throughout the loan term
- Rolling up the interest to pay at the end
- Deducting the interest from the loan amount at the start
Each option affects your cash flow differently, so it’s worth considering which suits your business best. (Not all options are offered by all lenders).
Costs and Fees
Beyond interest charges, you’ll need to budget for:
- Arrangement fees
- Valuation costs
- Two sets of Legal fees
- Potential exit fees
These costs vary between lenders, and some may be negotiable through a broker.
Read more: How Bridging Loan Interest is Calculated and Charged
Who Can Apply?
Business bridging loans are available to:
- Company directors and business owners
- Partnerships and LLPs
- Property developers
- Investors and entrepreneurs
You’ll need a clear business case and, most importantly, a solid exit strategy showing how you’ll repay the loan.
This might be through:
- Selling assets
- Refinancing to a long-term loan
- Cash flow from the business
- Investment funds
Your credit history matters less with bridging finance than with traditional loans, but lenders will still check it. Their primary focus will be in the value of your security property and the strength of your exit strategy.
Read more:
Exit Strategy Planning
A solid exit strategy is the backbone of any bridging loan application.
It’s more than just having a plan to repay – it’s about showing lenders you’ve thought through every angle and have backup options ready.
Let’s look at the main exit routes in detail:
Selling Property or Assets
Before choosing a sale as your exit strategy, you’ll need to:
- Get professional valuations from qualified surveyors
- Research recent sale prices of similar properties in your area
- Understand current market conditions and trends
- Calculate realistic timeframes for marketing and completion
- Factor in any repairs or improvements needed before sale
- Consider seasonal market variations
- Build in a time buffer for unexpected delays
Remember to account for all selling costs, including agent fees, legal expenses, and any tax implications. Smart sellers often start marketing the property well before the bridging loan is due.
Refinancing to Long-term Lending
This popular exit route needs careful preparation:
- Start conversations with potential lenders early
- Understand their lending criteria thoroughly
- Get an agreement in principle if possible
- Have all documentation ready for the application
- Know your business’s debt service coverage ratio
- Consider multiple lending options (commercial mortgages, asset finance)
- Allow time for property valuations and legal work
Many business owners secure their long-term refinancing before taking out the bridging loan, giving them peace of mind and often better bridging terms.
Using Business Profits
If you’re planning to repay through business income:
- Create detailed cash flow forecasts showing ability to repay
- Demonstrate clear revenue streams
- Show historic profit patterns where available
- Explain any seasonal variations in income
- Include contingency plans for slower periods
- Consider the impact of any business changes
- Document all assumptions in your forecasts
Building a Strong Exit Strategy
The best exit strategies often combine multiple approaches.
For example, you might plan to refinance but keep a property sale as a backup option. This gives lenders more confidence in your ability to repay.
Your exit strategy should include:
- Primary repayment method
- Backup options if the primary method fails
- Clear timelines for each stage
- Risk assessment and mitigation plans
- Evidence to support your chosen approach
- Names of professionals already lined up (estate agents, accountants, solicitors)
Remember that lenders will scrutinise your exit strategy carefully – it can be the deciding factor in loan approval. Be prepared to answer detailed questions about your plans and provide supporting evidence.
If circumstances change during your loan term, don’t wait to act.
Contact your lender or broker early to discuss alternatives. Most lenders will work with you to find solutions if you’re proactive about potential issues.
A well-planned exit strategy not only increases your chances of loan approval but can also help secure better interest rates and terms. It shows lenders you’re a serious borrower who understands the responsibilities of bridging finance.
Read more: How Do You Pay Back a Bridging Loan?
How a Broker Helps
Working with a specialist broker brings several advantages.
They can:
- Find lenders suited to your situation
- Structure your application effectively
- Negotiate better terms
- Speed up the process
- Help plan your exit strategy
Brokers have access to many lenders who don’t work directly with businesses, giving you lots more options.
Alternatives to Consider
While bridging finance can be excellent for quick funding, there are others to consider:
- Commercial mortgages will work better for long-term property purchases. They usually offer lower interest rates but take longer to arrange.
- Asset finance could suit equipment purchases, offering regular payment terms spread over several years.
- Invoice finance helps with working capital by advancing money against your sales invoices.
Each option has its place – the best choice depends on your specific needs and circumstances, and the time-frame you have to work with.
Read more: Business finance hub
Next Steps
If you’re considering bridging finance for your business:
- Define exactly what you need the funding for
- Work out how much you need to borrow
- Identify potential security property
- Plan your exit strategy
- Speak with a specialist broker
Remember, while bridging finance can help you seize opportunities quickly, it’s important to take the time to structure the deal properly. Getting expert advice early can make all the difference to your success.
FAQ
Most bridging loans can be arranged within 7-14 days, depending on the complexity of your case and how quickly you can provide necessary documentation.
Related: How to Access Capital Quickly Without Using Credit Cards or Overdrafts
You’ll need property or assets as security. This can be commercial property, residential property, or other high-value business assets.
Read more: What is a Bridging Loan Secured Against?
Our lenders set a minimum of £150,000 for business bridging loans.
While credit history is considered, lenders focus more on your security property value and exit strategy. Less-than-perfect credit may be acceptable with a strong exit plan.
Read more: Do You Need a Good Credit Score for a Bridging Loan?
Common exit strategies include selling property/assets, refinancing to a long-term loan, confirmed investment funds, or proven business cash flow.
Yes, if you have suitable security and a clear exit strategy. The loan decision isn’t based on business trading history.
Business bridging loans usually run from 3-36 months, with most being 12-18 months.
Yes, bridging loans are well-suited for auction purchases where you need to complete within 28 days.
Read more: Using a Bridging Loan to Buy at Property Auctions
Monthly payments aren’t normally required.
Related: How Bridging Loan Interest is Calculated and Charged
