Bridging Loans For Business
With the financial market constantly evolving, it is no surprise that new products and services like bridging loans are increasingly transforming the conventional wisdom surrounding funding new ventures and acquiring capital.
As banks continue to tighten their belts, other institutions have stepped in to supply the demand in the market. Here we will look at certain industries that are using bridging loans as a way of avoiding the traditional funding routes and what they are using the capital for.
Bridging Loans – Landlords
Due to the sub-prime mortgage collapse in 2008, traditional high street lenders have found it increasingly difficult to get on top of their toxic debt. Rates are increasing due to increased funding costs and they are reducing the amount of loans and mortgages to homebuyers and property developers.
This is especially painful for many buy-to-let property owners, as there is increased pressure on high street banks to loan to first time buyers therefore someone who has a good credit rating and equity in their assets may be rejected. This has led to a dramatic shift in the way individuals and businesses are borrowing money, which may change the industry forever. Bridging loans have closed the gap between the amount high street lenders are lending and the increasing demand in the market.
Over the last couple of years, many buy-to-let property owners have turned to bridging loans, and more specialist services have entered the market. By doing so, rates have continued to get more competitive, encouraging yet more owners into using bridging loans.
Bridging Loans – Property Development
Bridging loans have also been used to fund commercial projects on a relatively large scale. Recently a firm in the south east of England took a £20 million bridging loan, and purchased land to develop a high end residential estate. After the original funding partner withdrew, the project looked like it was going to stall. However, once the loan was completed, work resumed and is likely to now be completed.
This highlights how much the market has matured, as specialist bridging lenders are looking for new ways to loan money to individuals and business, be that land or other primary assets. As the market continues to grow, an ever increasing number of deals are turning toward this market.
Bridging Loans – Investment
Not only is this an opportunity for lenders, but also investors.
As the market is growing, the potential returns from investing in a specialist lending firm is showing greater returns than traditional investing opportunities, including government bonds. As more people capitalise on this market, demand for credit increases. Obviously there is more risk involved, but many reputable companies exist and are willing to accept new lines of credit.
Bridging Loans – Cash flow
These loans are particularly useful for companies with a large amount of assets that are experiencing cash flow difficulties. Other methods of freeing equity are available such as factoring, however this process often takes longer and you often pay a higher rate that a short term bridging loan.
This is very valuable in the construction industry as all of the equity is trapped in materials and unfinished property or commercial space. It is important to have an exit strategy, and this is often very apparent in property and construction.
The key factors behind people choosing these kinds of loans include flexibility, quick access to capital and a personalised approach which will allow personal factors to be involved in the decision, not just an automated inventory valuation method. With the market booming, bridging loans may be that the way firms and individuals finance projects has changed forever.
Written by Jonathan who is writing on behalf of Balmoral Bridging, a privately owned lender who offers bridging loans for commercial projects between £250 thousand and £1 million.