Bridging for business
When brokers think about bridging finance, more often than not property-related transactions tend to spring to mind, e.g. people using a bridge to buy at auction because they haven’t got the funding in place, or someone using it to buy their dream home because they haven’t sold their existing property yet.
This is understandable, as these are certainly very common uses for the bridging loan. But at the same time, it’s important to remember that bridging finance can be used for so many other reasons. And one area we’re really seeing it take off at the moment is in solving business-related issues.
In 2015, having gone through our case book, we saw a 17% increase in bridging loans being taken out for business purposes relative to 2014. That’s a noticeable increase and underlines how bridging finance is being used far more widely these days.
Why is this happening? Well I think bridging is a lot more trusted. After all, it’s really just another form of ‘alternative finance’ and these days people are much more comfortable with non-bank, non-traditional funding channels. Bridging is no longer as unfamiliar to the average borrower as it once was.
Bridging uses for business owners
So how are business owners using bridging loans? To give you an idea, here are four examples that we dealt with at First 4 Bridging in 2015:
• A manufacturing client of ours used a bridging loan of £1.75m to produce additional equipment to meet the rising demand for their product. They could have gone down the traditional bank route but that would have involved a far longer wait and lost sales. Instead, they took out a bridging loan secured against their commercial premises to quickly produce the new equipment and then paid off the bridging loan three months later when they received a term loan from their bank.
• A small business owner client was hit with a larger than expected corporation tax bill. She could have deferred payment of the corporation tax by a few months but wasn’t comfortable with that situation as it may have resulted in a red flag from the Revenue. Instead, she took out a £150,000 bridging loan secured against her residential property, paid her tax bill and then paid off the bridging loan two months later when she had remortgaged her home (she had significant equity in her property).
• A retail client of ours wanted to buy considerably more stock of an item that was selling very well but which they were soon to run out of. Once again, the loan – of just over £450,000 – was secured against the commercial property they owned and operated out of, and was paid back roughly five months later when they had sold the additional inventory at a significant profit.
• A technology company had a temporary cash flow problem when a large client had IT issues and was unable to make its payment on time. Our client needed to pay its staff and own suppliers and so the owner took out a bridging loan of £75,000 secured against his property, which he then paid off when the client eventually paid its overdue invoice.
Solving everyday business problems
I suppose what I’m trying to say by highlighting the examples above is that when you’re dealing with your clients, try to keep in mind how their companies could benefit from bridging finance, too.
Done correctly, there’s no doubt that bridging can be an extremely useful tool for solving business problems, as well as the more common property-related ones.
Lorenzo Satchell is a director of First 4 Bridging