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Bridging finance can be used to acquire a business. This is an practical avenue for finance especially if the new owner has no experience in running a business in this sector and no accounts or projections to show to the bank.
Limited companies can take out bridging finance, but in most cases (not all) the directors will be required to give personal guarantees.
Self-employed individuals are not normally required to provide business accounts or proof of income.
Meeting Tax Liabilities
Many businesses face a sudden tax bill where it would come with a deadline. Sourcing a traditional mortgage within the allocated time would be very difficult and the business could face prosecution and interest on their bill. The company can take out a bridging loan secured on their business premises to pay the tax bill.
Why Bridging Finance?
To raise finance quickly
To refurbish a property
To finish a development
The Benefits of Bridging Finance loans for business purposes
Speed – Finance can be secured quickly, usually within 7 to 14 days, sometimes quicker if speed is essential.
Flexible Term – The duration of the loan is often more flexible, usually from 1 to 12 months to fit the borrowers financing requirements more closely.
Extended Borrowing Limits – Borrowing limits can sometimes be extended; lenders will consider up to 85% funding basing their loan to value criteria on open market asset value rather than purchase price. If a higher loan to value amount is required the borrower may be able to offer additional security.
Flexible Interest Payments – Flexible interest payments; with agreement at the outset borrowers may be able to roll interest up to the lenders maximum loan to value, paying it off in a single tranche on completion of the project.
FAQ
01/ What is business finance and example?
Business finance refers to the management of money and financial decisions for a company. This includes obtaining and managing funds, budgeting, forecasting, and making investments. For example, a restaurant owner securing a loan to expand their premises is engaging in business finance.
02/ What does finance do in a small business?
In a small business, finance helps manage cash flows, plan for future financial needs, monitor expenses, and ensure that the business remains solvent. It also assists in making crucial decisions, like when to hire, invest in new equipment, or explore expansion opportunities.
03/ What type of business is finance?
Finance is a sector within the business world focused on the management, creation, and study of money and investments. It includes areas like banking, investment management, financial planning, and corporate finance.
04/ How is business finance related to accounting?
While business finance focuses on the management of a company’s financial resources and decisions, accounting is concerned with recording, summarising, and reporting financial transactions. In essence, accounting provides the data and historical insights that finance professionals use to make forward-looking financial decisions.
05/ What are the cons of bridge financing?
Bridge financing, while beneficial for short-term funding needs, has its drawbacks. These include:
– Typically higher interest rates than conventional loans.
– Short repayment terms.
– Potential for additional fees or charges.
– Risk of being unable to refinance or secure long-term financing.
06/ What is the concept of Bridging?
Bridging refers to short-term financing options, often used to ‘bridge’ a temporary cash flow gap. For instance, it can help businesses cover expenses while waiting for longer-term financing to be approved or can assist homeowners in buying a new property before selling their current one.
