While big corporations may make the headlines with enormous deals and multi-million pound transactions, the real bulk of the UK market is made up of much smaller businesses. Companies ranging in size from small back-room operations to larger enterprises with up to 250 people fall into the wide-ranging definition of small and medium-sized enterprises, and within this sector of the economy the most competitive businesses can be found. Within the SME sector there are thousands upon thousands of commercial enterprises all vying to keep their share of the market, and unlike their larger counterparts SME's are rarely able to take on large-scale financial resources. In order to remain flexible and competitive SME's must make use of highly adaptable business loans, exploiting bridging finance as an essential tool for developing and expanding their operations.
While bridging finance makes an ideal tool for SME's in need of financial agility it still comes with a cost, and the nature of bridging finance makes it well-suited to short-term projects. It’s still possible to arrange for longer-term solutions but business owners must bear in mind that bridging finance can quickly become expensive if not properly managed. Before committing to any financial product borrowers ought to seek the advice of a qualified financial advisor, who will be able to recommend suitable terms for the loan.
A bridging loan is a type of finance that’s used to cover short-term costs while a long-term solution is put in place; it “bridges the gap”, hence the name. These loans are exceptionally useful and can be put to almost any purpose, from beginning work on a property development project to injecting cash into a business, and the flexible terms available from bridging lenders enable borrowers to construct a tailored borrowing package.
Typically bridging loans are a form of secured finance, meaning that the money is lent against one of the borrower’s assets. Most bridging lenders are highly flexible when it comes to the types of assets they’ll accept as security; while property may be the most common form of securitised asset, other high-value assets such as equipment and vehicles can also be used. Because the loan is secured against an asset, the lender is able to provide a greater level of funding than an unsecured lender could; since they have the option to reclaim their investment through repossessing the borrower’s assets, they have a safety net if the loan isn’t repaid on time.
While this might sound worrying, it actually makes bridging a much more secure option than many other borrowing solutions, and because bridging lenders have a much freer hand than mainstream banks do when creating their lending packages, borrowers stand to benefit from increased flexibility. This flexibility enables borrowing in situations where high street lenders simply can’t help, and allows SME's to get the cash they need when they need it.
A common use for bridging finance in the SME sector is to help smooth out fluctuations in cash flow. Unlike major corporations, SME's are unlikely to have significant reserves of capital (or at least the option to borrow freely if they suffer losses), which makes them highly dependent upon their monthly cash flow. If their income dips, or if a sudden expense comes along, an SME can suffer significantly. Let’s examine two different situations in which an SME business loan can prove useful:
Bridging loans are ideal solutions to the problems that confront SME's. They can be provided in large quantities (loans typically range from £50,000 to several million), and bridging lenders work to exceptionally short deadlines; while a bank might take several months to agree to a loan, an application to a bridging lender is typically completed in under a week (sometimes even faster, if necessary). In addition, bridging lenders can provide terms that banks simply cannot agree to, and allow borrowers to make use of valuable options such as deferring the entire cost of a loan until the final repayment; in the examples above, this would enable our businesses to keep their monthly costs at rock-bottom until the end of the loan. As a flexible and highly effective method of providing funding, bridging loans are an ideal solution for SME's in need of financial agility.'
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