As any business owner knows, cash flow is one of the most difficult areas to manage. No matter how successful a business is, there can often be a shortfall of cash when you most need it. Paying suppliers or waiting for payments can tip a business into negative cash flow, which will not only have a negative effect on the business, but can cause it to fail completely. So cash flow is one of the most critical aspects of running a successful business, but what can you do if you find yourself struggling to hold on until your next payment? Fortunately, there is an answer, and these come in the shape of bridging finance.
Loans for Business
Picture the scene. You run a company from a building you own. Your business has become more successful but you need bigger and better premises to make your business more efficient. So you have put the building up for sale and have a buyer, but he isn’t going to pay you for two months. In the meantime, you’ve found the ideal premises on the other side of town, but you know it’s going to be snapped up by a rival company, and you can’t buy it until you have been paid for your existing premises. It could be a disaster.
However, a commercial and bridging loan will do exactly what it says on the tin. It provides a ‘bridge’ between the payment you are waiting for, and your new premises, by lending you the cash for the new offices before you get your cheque.
However, a bridging loan doesn’t just have to be for purchasing property. It can also allow you to pay for urgent business expenses, such as wages, suppliers, fulfilment of orders, or rent for your business premises. As long as you have assets in place, a bridging loan is likely to be available to you.
How Commercial and Bridging Loans Work
Very simply, bridging loans are divided into types dependent on your ‘exit strategy.’ These are known as ‘closed’ bridge loans, and ‘open’ bridge loans. A closed bridge loan means that you have a definite exit strategy from the loan in place. This is likely to be a payment that you are waiting for, such as the payment from the sale of an asset.
An open bridge loan means that there is no fixed time that you must have paid it off by, and that there is no certain exit strategy in place. Although the loan will only run for up to a year, this gives you time to refinance in some other way. It’s important to remember however, that if refinancing fails, you will still have borrowed on the basis of the security offered by an existing asset, so you stand to lose this asset should you be unable to secure finance from elsewhere.
The advantage of commercial and bridging loans over mortgages is that they can be arranged very quickly. So if your business is in urgent need of a cash injection for the short term, bridging finance can help see you through.