Your five-minute guide to business bridging loans

A business bridging loan is one way for companies to borrow money fast. However, they can prove expensive and are only designed for short-term borrowing.

Key takeaways

• Business bridging loans are short-term commercial loans designed to bridge a gap in a company’s finances

• They can have fixed or variable interest rates

• Most need a business asset – such as property – as security

• Loans of this kind offer quick access to cash, but at a price

• Interest rates are generally higher than on standard business loans

What is a business bridging loan?

Business bridging loans are business loans designed for companies needing short-term funds quickly. 

Things you might want to use a business bridging loan for include:

• Buying a commercial property

• Paying a tax bill

• Acquiring or merging with a competitor

• Funding renovations or expansion into a new area

• Buying equipment

Business bridging loans tend to be secured loans, which means the lender requires the borrower to put up an asset, such as an office building, as collateral against the loan. In most cases, the amount you can borrow therefore depends on the value of the asset you put up as security.

So, for example, if the asset is valued at £1 million, the lender may offer you up to 60% of its value, meaning you could borrow as much as £600,000. The minimum loan amount for a business bridging loan is typically around £10,000.

No matter how much you borrow, however, you usually only have up to 12 months to pay it off in full.

How do bridging loans for businesses work?

As with other types of business loan, you must pay back the amount borrowed and the interest charged within an agreed time frame. However, unlike with many other forms of business finance, you don’t always have to pay business bridging loans off on a fixed date.

While so-called closed business bridging loans set a date on which you must repay the loan, open business bridging loans give you more flexibility. However, you typically still have to pay them off within a year.

You may also have to pay monthly interest payments, depending on the terms of your business bridging loan.

Another flip side of this flexibility — and the speed with which you can access the funds — is that business bridging loans generally have significantly higher interest rates than many other forms of business finance.

These rates can be fixed or variable, so make sure you understand all the terms and conditions before taking out a bridging loan. This is particularly important because you stand to lose the asset you use as collateral if you are unable to repay the loan on time.

How do I apply for a business bridging loan?

Business bridging loans are available from specialist lenders and brokers, who need to know that you have a clear plan of how to repay the money within the agreed timeframe.

It’s therefore wise to have a payment exit strategy in place before you apply. This could be the proceeds from increased sales or the disposal of an asset.

You can then approach a lender and request a decision in principle based on the amount you want to borrow and the value of the collateral, which the lender checks. 

You can expect a decision in principle within 48 hours. Once approved, the loan can be arranged in anywhere from a few days to a couple of weeks, depending on the specifics of your situation.

If your application is approved, you can expect to receive the funds within two to three weeks.

What are the benefits of a business bridging loan?

The main advantages of business bridging loans are:

• The providers are often more flexible than traditional business lenders. So, you may find you can qualify for a loan of this kind even if you are finding it difficult to get a standard business loan

• They can often be set up faster than other forms of business finance. This makes them useful for time-sensitive opportunities that could help you grow your company or increase your profits

• You may find you can borrow more with a business bridging loan than via a traditional business loan provider

• Not all business bridging loans charge early repayment fees, especially if you choose an open loan with no fixed repayment date. So, the faster you can pay it off, the better

What are the downsides of a business bridging loan?

The main disadvantages of business bridging loans include:

• They are a high-risk form of business finance and therefore often come with higher interest rates and fees than other loans

• You could lose the asset you offer as collateral if you are unable to repay the loan within the agreed time frame

• You need a clear exit strategy, such as a big payment or a longer-term form of debt financing, to be eligible for a business loan of this kind

• You usually have to pay a range of charges — such as legal, arrangement and valuation fees — to take out a business bridging loan

What alternatives are there to a business bridging loan?

There are lots of different forms of business finance to choose from. The right one for you depends on various factors, including why you want the money and how long you need to pay it back.

Alternatives to business bridging loans include:

• Standard business loans, which can be secured or unsecured, and can be used to finance a wide range of business needs. Find out more with our handy guide: How do business loans work?

• Invoice financing, which is also suitable for short-term borrowing and enables you to access funds you are due to receive from customers or clients

• Equity crowdfunding, which involves convincing investors on crowdfunding platforms to finance your project or business plans

• Business lines of credit, which often also require collateral, but you can receive the money as a lump sum or in regular instalments