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How companies can use bridging finance to grow their business

1/3/2017 12:00:00 AM   0 Comments   bridging loans, buy to let

Bridging finance has become an extremely popular source of finance in the UK for proprietors and businesses looking to raise finance.

In 2011, around £750m was borrowed through bridging and this amount has increased five-fold to £4bn in 2016.

The fast-growth has come as the result of stricter criteria from mainstream banks and the emergence of 40 bridging lenders who have created a competitive market in the UK.

What is bridging finance?

This is a type of short-term finance used where there is a strict deadline in place. Essentially, you are bridging the gap (of finance) in order to complete the deal. The other sources of finance are unavailable or would take too long, so rather than miss out on the opportunity, you apply for a ‘bridging loan.

The amount you can borrow typically ranges from £25,000 to as much as £25m, but because it is short term finance, the loan term is only around 3 months to 12 months (or sometimes 24 months).

The applicant must put some form of security down as part of the agreement and this is typically a commercial or residential property, or perhaps a stake in your business. Other types of security include cars, jewellery and art, although these are less common.

You are required to repay the entire loan and interest in full or you risk having your property repossessed. Borrowers have the option to repay their loans in monthly repayments, interest-only or rolling up the interest until the end of the loan term.

The loans are commonly settled upon the sale of a business or property and the borrower has received an injection of cash which they use to repay the loan.

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