Growing businesses often struggle with cash flow shortfalls. They may have invested in inventory to help grow, but are now waiting for the stock to sell so they can start turning a profit. In other cases, a business owner might have just secured a new contract, but they need a new piece of equipment to deliver the goods.
Bridging finance is usually understood in terms of property transactions, where a short-term loan is used as an interim facility to quickly secure a property or generate cash flow while other finance is put in place. But for business owners, there is another form of bridging finance that helps cover the time-based gaps in your cash flow by providing fast, short-term business finance quickly.
A bridging loan provides a means to cover the cost of an immediate purchase. These loans are short-term solutions, and most borrowers aim to repay the loans as quickly as possible to minimise costs. The bridging loan injects temporary capital into your business for a short period to help you meet costs and this can be an exceptionally valuable tool for businesses that find themselves needing to meet unexpected costs at short notice, or who have a shortfall in their balance sheet.
Cash flow loans differ from working capital loans in that they’re designed to help maintain the current cash flow rather than enhance it for an upcoming expense. For example, if your business needs to invest in new equipment to take on more clients, you will need a working capital loan, since you are looking to expand. However, if your business needs to carry out emergency repairs to your property, will need cash flow finance.
A bridging loan differs from many other forms of finance in that it is a short-term asset-backed loan product. This means that the finance is secured against the borrower’s assets, most often against their property. Some bridging lenders will agree to provide loans against other assets such as machinery or vehicles. Because bridging loans are secured by assets, they can be used to generate a large amount of capital, as long as the assets are of sufficient value.
Bridging finance is excellent for plugging the gaps in business cash flow because of the speed with which bridging lenders such as CorpFin work. Banks can take several weeks to complete a loan while bridging lenders can often provide funding in less than a week. This means that bridging loans can be used at short notice, so that when unexpected expenses come along, the business can respond quickly and confidently to changing circumstances; a loan can quickly be obtained to cover the short-term costs, and the business can keep its monthly finances intact.
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