Bridging loans provide timely, short-term lending usually over a maximum term of 12 months. The loan serves a purpose by ‘bridging’ the gap between a payment falling due and the usual source of finance coming in. For example, a business might be waiting on the sale of an asset or property; and a bridging loan can help in the interim period.
Unlike other forms of borrowing, the monthly interest is often rolled into the loan with no repayments to make during the term of the loan.
The types of bridging loans commonly available are:
- A closed bridge loan – where the exit strategy for the loan is clear from the outset. This means the lender knows exactly how the loan will be repaid at the end of the term.
- An open bridge loan – requires no specific exit strategy, or the strategy has no set date. Up to one year is usually allowed to repay the debt.
Bridging loans should not be seen as a replacement for longer-term loans; rather an interim form of finance designed to support you and your business until ‘the money comes in’. It’s important that you have a solid financial situation and a clear strategy in case the money you expect to arrive at a later date fails to do so.
UK Business Finance can provide a free consultation to help you understand more about bridging loans and analyse whether this is a viable way for your business to access funds.