A business’s cash flow can often be the determining factor in its success - a company that has a healthy monthly income can make confident plans for the future. This enables growth, and allows the business to develop its share of the market. However, it’s easy for a growing company’s cash flow to become obstructed, and any mismatch between outgoings and income is likely to result in a cash flow deficit. Any number of expenses can cause a shortfall in a business’s cash flow, from VAT bills to National Insurance, PAYE and even supplier non-payment, and no business owner can consistently forecast when they’ll need a little extra space in their balance sheet.
While long-term cash flow solutions such as overdrafts and revolving trade facilities are available, these forms of finance take a long time to arrange; there’s no guarantee that funds will be made available, and in the time it takes to complete an application the business may have suffered severely from its lack of capital on hand. Short term cash flow loans are therefore an excellent way for businesses to inject some much-needed capital into their accounts at short notice.
In this article we’ll highlight some of the problems that can require a business to seek cash flow finance, and the ways in which bridging loans can be used to solve these problems. It’s important to bear in mind, of course, that bridging finance is a short-term secured loan, and should not be considered a long-term financial solution; bridging loans are, as the name implies, intended to bridge the gap temporarily. Before entering into a contract, business owners should consult an experienced financial advisor to ensure that bridging finance is the right choice for them.
For some business owners, the thought of having to resort to a cash flow loan is troublesome. Businesses should always be prepared to meet their costs, is the thinking, so if a business needs to borrow money urgently this reflects a failure in their planning. However, while this may hold true for personal accounts, it doesn’t reflect the realities of modern commerce.
No matter what industry your business is in, there will always be unexpected expenses; this could come in the form of a higher-than-expected tax bill, a major customer going out of business, or the need to repair equipment. No business can successfully guard themselves against all of these costs, so it’s important to have reserves of capital on hand to meet unexpected expenses. However, this means that the business is now sinking a portion of its hard-earned income into a bank account, where it will generate a paltry interest rate. There’s no guarantee that this money will ever be needed, or that it’s an appropriate amount to meet this unknown need; you may be saving £10,000 and need only £1,000, or £50,000. In either case, this money tied up in the bank could be better spent by re-investing in the business; more marketing, more staff training, bigger and better business deals, and so on.
With this in mind, we can see that keeping capital on hand “just in case” is actually detrimental to a business, because this cash isn’t really an effective safeguard. It also has a negative impact on a business’s performance, because the opportunity cost of putting money aside is to forego any improvements to the business itself. Short term cashflow finance is therefore a valuable option for businesses which allows them to re-invest their income as and when they choose.
The main selling point of bridging lenders is the speed at which they work. While most mainstream lenders will take several weeks (or even months) to complete an application, bridging lenders will often give you a yes or no answer on the day. In many cases a bridging loan can go from application to funds becoming available in just one week, enabling businesses to act quickly when they need to. When business expenses can come out of the blue, it’s invaluable to be able to source funds in such a short space of time.
As mentioned previously, bridging finance is a form of secured lending. This means the borrower has to put up some form of security in order to guarantee the loan; most often this is in the form of property, but vehicles and equipment can also be used. Most businesses don’t actually own their own premises, and have some form of finance already in place; plenty of companies use asset finance to operate their equipment, while almost all businesses use mortgages to secure their premises. Bridging lenders can, in many cases, take these assets as security, offering a “second charge” against them. While second charges are not as secure as first charges, the smaller amounts typically required for short term cashflow loans mean that they’re often perfectly adequate.
In addition to this form of security, some FCA-accredited lenders are able to offer charges against the borrower’s personal property. These loans are only available from lenders who adhere to the FCA’s strict lending requirements, but should still be handled with great care; just as with a mortgage, bridging lenders are able to repossess the borrower’s assets if they fail to repay.
One of the most important aspects of bridging finance that makes it exceptionally useful for cash flow finance is the flexibility of bridging lenders. The terms and conditions of a bridging loan can usually be altered to meet the needs of individual borrowers, so no matter what a client’s needs are the lender can design a bespoke lending package that perfectly suits their requirements. A common option for borrowers is to “roll up” a loan’s costs until the repayment date - this keeps monthly costs down, and allows businesses to stabilise their cash flow situation without the added burden of loan repayments.
The flexibility and speed with which bridging lenders work makes this type of finance an ideal choice for businesses in need of short-term cash flow funding.
Businesses need access to fast, flexible finance solutions, and bridging finance is an exceptionally good fit to meet the needs of modern commerce
SME's require a stable, flexible source of finance in order to meet deadlines and even out cash flow, and bridging finance provides an excellent solution
Bridging lenders provide fast, flexible finance that can be used to create capital for many different uses, enabling businesses to expand and invest confidently
Businesses succeed or fail on the strength of their cash flow, and bridging finance can be an excellent way to maintain a cash flow’s resilience in tough times.
Debt is part and parcel of modern commerce, but businesses must remain adaptable when handling debt; bridging loans can help enable this financial flexibility.
Farming is a difficult business, and farmers need to have a finance plan in place that enables them to expand and invest easily from year to year
Bridging finance provide a flexible way for new business owners to source essential extra capital, helping their commercial ventures get off on the right foot
Nursing and care homes are a unique blend of commercial and property investment, and require the careful touch of specialised, experienced bridging lenders.
Financing the purchase of a pub freehold or long leasehold requires the flexible, adaptable solutions that can be arranged with specialist bridging lenders.
A revolving trading finance facility is a form of funding that offers a highly flexible financial solution for businesses that need to meet fluctuating costs.
Temporary bridging loans are an ideal way to meet a business’s ongoing operating expenses, helping to maintain their cash flow whilst meeting unexpected costs.
Turnaround finance is a method of restoring a business in temporary difficulties, and can be used to save otherwise viable companies from bankruptcy.
Unsecured business loans enable small businesses to be flexible, meet expenses and expand without resorting to cumbersome long-term financial solutions
Bridging finance can provide essential working capital for businesses at short notice, and is a highly flexible way of creating funds for a variety of needs
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