Bridging Finance

There are many scenarios where you might face a short-term gap between needing to make a payment and receiving funding from another source – which could be a loan or income from selling stock or other assets.

In the lifecycle of your SME this might happen during:

• Start-up
• Managing running costs or creditor pressure
• Growth such as where a large stock or asset purchase affects cashflow
• Acquisition of another business
• Turnaround for distressed or insolvency situations

Bridging finance (also known as gap funding) may be ideal as it’s often quicker and simpler to arrange than a bank loan and usually for a shorter term. Typically, funding will be from one to 18 months, so you’re not tied in for a long time.

However, interest rates can be higher than other loans, so we will always advise if other options could work for you such as invoice financing, asset finance or a commercial mortgage.

Funding needs to be secured against assets such as:

• Property – including corporate or rental property
• Tangible assets like plant, machinery or stock
• Debt such as unpaid invoices you have issued customers

There are three main ways of repaying a bridging loan. The options will depend on what you secure the loan against and how you will repay it (e.g. with another loan or by selling stock, services or assets).

• Monthly repayment. By servicing interest monthly you will reduce the redemption payment you need to make at the end of the loan, but obviously requires cashflow and will depend on length of the term.
• Rolled-up. The interest and some fees are added to the loan amount. You simply clear the entire amount plus interest at the of the loan in a single payment which can be more expensive but avoids monthly cashflow pressure.
• Hybrid. This is a middle ground option where you can roll part of the total interest into the loan and service the remainder on a monthly basis. This gives you more control over your cashflow and can be cheaper than deferring the whole amount.

In the aftermath of the pandemic, a bridging loan could be very useful to help you respond to rapid change and opportunities.

Bridging loans themselves are not regulated in the same way as other loans, so as a regulated adviser, we take great care to make sure you face no hidden traps or charges. We clearly explain any arrangement, valuation or admin fees.

That means you can make a quick decision and get back to running your business.