How A Bridging Loan is Beneficial For SMEs
Many small businesses need funds either to help them get off the ground or to overcome their financial problems. It is challenging for small and medium enterprises (SMEs) to secure standard bank loans because they consider them riskier. In such situations bridging loans can help them to secure the required funds and keep their business running. Many p2p lending platforms and bridging lenders offer bridging loans for SMEs depending on their needs and current circumstances. Are you looking for bridging finance but do not know much about business bridging loans? You have come to the right place.
Keep on reading this article to know how bridging debt can help SMEs.
What Is A Bridging Loan For Business?
A business bridging loan is a commercial loan that allows you to take out money for a short period compared to traditional bank loans. However, due to its short-term nature, the interest rate is higher. Note that these are secured loans, so you have to use collateral to borrow money.
Bridging loans are typically used by businesses that need short-term financing. For example, you may be investing your capital in the stock or purchase of a property and now waiting for long-term funding to be available. You can fill this financial gap by taking out bridging finance.
We can say that such loans are a bridge to a more permanent funding source for SMEs, whether it is a long-term loan or income from sales.
Bridging loans do not take a long time to arrange and have flexible criteria compared to other forms of financing.
The Challenges That SMEs Are Facing
Several factors, such as the impact of the pandemic and raising costs due to leaving the European Union, have left many business owners uncertain about their future. According to a survey conducted by cloud accounting provider FreeAgent, half of the SMEs surveyed are concerned about their future.
SMEs are a vital part of the UK economy as they contribute 52% of turnover to the UK economy, according to recent figures from FSB. They are facing several problems, from a decrease in profit to more customers shopping online and the rising costs of raw materials and products.
A lack of cash flow is the primary concern of small and medium-sized enterprises. With the changing spending habits of buyers during the lockdown, businesses have to find alternative ways to generate an income stream. Some of them have pivoted their business successfully, while others are struggling to purchase new products due to unsuccessful previous seasons.
Banks are more likely to reject the applications of startups and small businesses because businesses in the first two years of development are too risky in their eyes.
However, the failure to support the growth of SMEs is also a risk to the UK economy, so bridging lenders are helping them to get funds and keep running.
How Bridging Loans Help SMEs?
On the other hand, bridging lenders provide quick approval and access to funds. You do not need to complete lengthy paperwork and usually get funds transferred to your bank account within two weeks.
The eligibility criteria are also flexible, and you can also get tailored solutions according to your circumstances. Bridging lenders and p2p lending platforms also offer loans even if you have bad credit. You can use the loan amount for a number of purposes, including:
Pay wages or tax bills
Purchase new equipment or stock
Expand business
Purchase of a commercial property
Pay any legal cost
Bridging lenders allow you to use the loan amount for almost any legal purpose and do not interfere as long as you are able to repay the loan.
You can take out a large amount of money if you have a high-value asset, such as property, to use as a security against the loan. Business owners can also use more than one property as security to take out a huge amount of money.
What is The Cost Of a Business Bridging Loan?
When it comes to taking out business bridging loans, the main concern of business owners is the borrowing cost. The cost of bridging finance may vary from lender to lender, and it also depends on several factors, such as:
The loan size
Loan terms
Value of the property
Exit strategy
Credit score
However, bridging lenders’ rates tend to be more expensive than other forms of borrowing. Typically a lender charges between 0.5 to 1% per month. They may also charge additional charges such as arrangement fees, valuation fees, administration and legal fees. It is also important to know the different types of bridging loans available in the market and their costs so that you can choose one that you can afford to repay.
Usually, bridging loans last for 3 to 12 months, but some lenders offer loans for longer terms. You must keep in mind that the longer the terms, the more interest you have to pay. So we suggest you repay the loan amount as soon as you can. In addition, you should never take out an amount that you can not afford to repay. Otherwise, you may get stuck in a never-ending debt cycle, and there is also a risk of repossession.
Conclusion
Bridging loans are a useful option for SMEs as it provides quick access to funds within a short period. If you are not able to get a loan from banks or high street lenders, you can go to a peer to peer lending UK platform or bridging lenders to get the required financing and fulfil your obligations. Businesses can use these funds to overcome cash flow issues, purchase raw materials or equipment, or buy a property to expand the business. The interest rate of business bridging loans is high, so you should research to find the right lender and the best available deal.
Comments
Post a Comment