A bridging loan is a flexible short-term loan that can raise much needed working capital that can be useful in many situations, especially since they can be arranged quickly.
Sometimes a business suffers from a temporary lack of funds. Some businesses have regular periods when trade is low and other periods when trade is high. A prime example of this is retail companies and gift manufacturers who have a large surge in business pre-Christmas, but may have fewer sales in the summer.
During slow periods, staff, rents, energy bills and suppliers still need paying. If current sales and cash reserves cannot cover the expenses, a bridging loan can be used to provide short-term working capital, then repaid during the busy season.
Sometimes an unexpected tax bill must be paid. The money to pay it may not be available until after the tax bill deadline, so a bridging loan can be used to pay the bill.
When buying commercial property, VAT must be paid at the time of purchase. Although the VAT will be reimbursed, this does not happen until after the next return date, which can be several months away. If a business finds it difficult to pay the VAT, a bridging loan can be used.
Often, a business is trading at a profit but does not have much money in the bank because of a high number of unpaid invoices. There are a number of ways to tackle the issue of overdue invoices, but until the situation is resolved, a bridging loan can be used to raise funds until the invoices are paid.
To expand a business, new equipment is often required. If lack of funds is holding a business back from investing in new equipment, a bridging loan can complete the purchase.
The bank calls in the overdraft
If a business has an overdraft facility at the bank, the bank can call in the overdraft and insist that it is cleared. Bridging loan funds can be paid into the bank in these cases.
Sometimes, a business is offered large quantities of in-demand stock at a large discount but does not have the funds to purchase them. A bridging loan can be used, then repaid after the stock has been sold.
The exit strategy
Whatever the reason a business needs a loan, the main thing is to have an exit strategy. The lender needs to know how and when the loan can be repaid.
If your business requires a bridging loan, the first thing to do is talk to a bridging finance expert at Ascot Mortgages, who will be able to find a suitable lender and help you with the application process, including what documents you need to submit to support your application.