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Secured Loans vs Bridging Loans

PUBLISHED ON: 11/03/2024

What are the differences between secured loans and bridging loans?

Secured loans and commercial bridging loans are similar financial products but there are notable differences that mean it’s important to carefully consider your business’s needs before applying.

Secured loans can be used for a multitude of purposes and are generally a good option for asset-rich businesses because one or more assets must be provided as collateral. This considerably reduces the lender’s risk and can open up access to lower interest rates.

Commercial bridging loans are a short-term form of funding that literally ‘bridge the gap’ for borrowers financially. A bridging loan is more appropriate if a business is purchasing a property but hasn’t completed the sale of its existing one. In this case, the bridging finance enables them to proceed with the purchase.

What are the main differences between secured loans and bridging loans?

Loan term

  • Secured loans offer a longer loan term than a bridging loan – typically up to 10 years or more
  • A bridging loan is a short-term funding solution and usually lasts for a maximum term of 18 months

Time to obtain

  • Secured loans take a little longer to obtain, as the lender must carry out a professional valuation of the asset put forward as collateral
  • Bridging loans are quick to access and the funds can be in the borrower’s bank account within 48 hours

Focus on collateral

  • When a secured loan is taken out the lender’s focus is on the collateral provided by the borrower. The level of collateral put forward can influence the loan terms and interest rate offered.
  • In the case of bridging loans, the focus may be more on how and when the borrower will repay, as well as the property’s commercial value

Interest rates

  • Secured loans are generally associated with lower interest rates due to the reduced risk for the lender. If the borrower cannot repay, the lender can repossess the asset provided as security and sell it to recover their money.
  • Interest rates on bridging finance will typically be higher because these are short-term loans and therefore present a greater risk for lenders.

Should I apply for a secured loan or a bridging loan?

Whether a secured loan or a bridging loan is more appropriate depends on the purpose of the financing and whether it’s to provide short-term or long-term financial support for your business activities.

You may be able to obtain a secured loan with a low interest rate that allows your business to grow by investing in a property or other type of asset over a longer term. A secured loan offers financial stability to a business, as repayments are predictable and fixed.

If your financial needs are time-sensitive, however, a bridging loan is likely to provide the rapid and flexible access to funding that you need – perhaps to secure a commercial property without having to wait for your sale to go through.

UK Business Finance are commercial finance brokers with extensive experience in helping businesses access vital funding. We can guide you towards the best type of finance for your needs and offer our services free of charge. Please get in touch to find out more.

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