Bridging loans are short-term flexible loans that have several uses for business. They can be used for temporary cash flow issues, purchasing business premises, buying bulk stock items or
expensive equipment.Many business owners have ideas about bridging finance that are little more than myths, and here are four examples:
Myth #1: you need a good credit rating
Most standard lenders require both individual and business borrowers to have a good credit rating. If you have made past payments late or defaulted on a previous loan, your credit rating will probably be affected. This can mean that some lenders will refuse loans, or provide loans at very high interest rates.
A bridging finance lender is more concerned about the value of the property used as security for the loan and how and when you can repay the loan, and will usually let you pay the loan off early.
If you have sound plans for repaying the loan and the lender knows where the funds will come from, this is more important than the business credit rating. This means that it is possible to obtain bridging finance with an imperfect credit history.
Myth #2: it’s better to get a loan from a large bank
It can be difficult to get a bridging loan approved by a large bank. They will tend to have strict and inflexible lending criteria. Bridging finance brokers can source a loan from a small alternative bridging lender. Small lenders will be flexible and prepared to look at each lending application on a case-by-case basis, rather than applying one set of lending rules to every application.
It is particularly useful to use an alternate lender if the loan application is complex. Small lenders have the time to look at all aspects of a complicated deal to access its viability.
Myth #3: there is a limit on how much can be borrowed
Yes, there is a limit on how much a bridging lender will lend you, but this is limited to the value of the security used for the loan. It is not dependent on the business profit or cash flow. More than one property can be used as security, and some lenders may allow business equity to be a portion of the security.
If the business is fully confident that the funds to repay the loan will be available before the end of the loan period, the loan can go into seven figures.
Myth #4: Getting a loan takes a long time
Many standard loans such as commercial mortgages and bank loans can take a few weeks before the funds are available. A bridging loan can be much more quickly. If the loan is required for a time sensitive deal, the bridging broker can work with the lender to make sure that the funds are available within a few days.
If your business requires bridging finance, talk to Ascot Mortgages about all aspects of bridging loans. They can dispel any false myths that you have about bridging finance and arrange a bridging loan deals that has transparent terms and conditions to make sure you have the full information about your loan.
