The number of bridging lenders has increased significantly over the last few years. Rapid growth makes business finance more accessible and beneficial for people. You can obtain bridging loans from several companies regardless of whether you have satisfactory credit ratings or have found it challenging to get loans or mortgages. Besides, if you are self-employed or have a poor credit history, you can still qualify for this type of loan. But before knowing all this, you must understand the meaning of bridging loans, how it works, and various other details. So to help you with all these, we have listed down several facts which will explain everything about it.
The meaning of bridging loans
A bridging loan is nothing but a short-term business finance method. People use them to purchase equipment, assist with cashflow or business expansion. When you get approved the lender will have a first or second mortgage against the property. As it is a short-duration loan, people often call it interim financing, short term loan, and gap financing.
You can clear the loan in full or secure longer-term refinance to repay the loan. It is where the term bridging originates from. The loan offers a gap or bridge in the finances until the borrower has freed up another funding source. Thus, it helps people to go from one step to the next one with ease. Besides, it provides speed and flexibility and assists people efficiently.
The uses of bridging loans
A consumer bridging loan permits you to buy a home before you have sold the previous or existing property. So, if you want to purchase a new property, it may assist you. Bridging loans for business use can be for any worthwhile business purpose. Bridging business loans can use the equity from your current property to help your business thrive.
Some business owners utilize bridging finance to arrange working capital to overcome short-term cash flow difficulties. But if you are planning to use it for this purpose, you must remember though it can meet the urgent requirement of cash, the interest rates are more expensive than others, and you have to offer security for the loan and have the ability to repay in a short period of time.
The payment options of bridging loans
The lenders of bridging finance in Australia provide payment flexibility to a much greater extent. They will offer three types of payment facilities. They are as follows
- Calculated monthly interest payments until you can repay the loan in full.
- Cost of the loan capitalised and repaid at expiry
- Repaid from the sale of an asset
Besides, a borrower can repay the amount at any time. It will reduce the outstanding balance and monthly repayments. It is one of the significant reasons why people are opting for this while buying a new property.
The misconceptions of business finance and bridging loans
There are many misconceptions and misunderstandings among people about this loan type. But the most prevalent one is that bridging loans are costly, and they cannot understand the interest rates. Even though business finance bridging loans are charged at a monthly rate they can be taken out for as little as a one month term so you are only paying interest on the term the money is borrowed for. A cost benefit analysis will determine whether a bridging loan is right for your business.
The pros of bridging loans
If you need immediate funding, bridging loans are beneficial as you can get the loan within 24 hours. It suggests that you can obtain the capital almost instantly, and you do not have to wait for several months to obtain the funds you need immediately.
As you know, it is a short-term financing option. Depending on loan terms and conditions, the lenders will evaluate what works for the business best. But the advantage lies in its capability of reducing the financial burden. Instead of bothering about monthly loan payments for years, you can pay off your loan whenever you are ready.
Flexibility in Payment
The bridging loans offer flexible repayment options like weekly, bi-weekly, or monthly payments. You can determine whether to pay off the loan before time or not. Besides, you should pick the most reputable lender who can meet your needs. In that way, you can schedule your repayment option at your convenience.
The cons of bridge loans
Bridging loans are can be risky as it is a short-term option. There is constant pressure on the borrowers to sell the property.
With shorter term bridging loans you must ensure that you have an exit strategy in place and that you have the capacity to repay the loan within the time frame.
So, before applying for a bridging loan, consider its benefits and drawbacks and other aspects carefully. You must be aware of the lenders and their terms and conditions to avoid future complications.