18 Apr 2024


In the competitive world of businesses, having timely access to funding can sometimes be an advantage, otherwise you may miss the right opportunities. Bridging loans provides a time-sensitive and flexible way for businesses needing short-term financing to overcome a financial gap. Yet, the loan application procedure demands a thorough review of some individual criteria that are key to securing a bridging loan at a reasonable rate.

What is a Bridging loan?

A bridging loan, often referred to as a bridge loan or stop-gap funding, is a very short-term loan that provides funding for the period between when urgent financing is required and the implementation of a long-term financing solution. 

It is particularly useful to firms who might need capital just in time to settle pressing financial obligations or to benefit from one-time attractive opportunities present. Bridge loans are often employed in property dealings which include purchases or refurbishments, where the need for finance emerges before the sale of the existing property or finalization of a permanent mortgage.

These loans are in the form of a loan that is backed by collateral – usually, property or other marketable assets, which serves as a guarantee for the loan. They are normally repaid within a specified period of three to twelve months. Bridge financing ensures that businesses have the flexibility that they need, including repayment terms, and faster access with minimal documentation and considerably shorter approval processes. 

Though they usually come along with high-interest percentages and fees, they can be a much more convenient loan option for the borrower since they are short-term loans. However, bridging loans are still some of the most valuable finance options available for companies looking for quick capital to seize once-in-a-lifetime opportunities or to address their short-term cash flow needs.
The following are the bridging loan criteria to secure a loan.

1. Clarity of Purpose & Exit Plan

Businesses that are going to apply for a bridging loan must have a very clear idea of why they need the funds and how they expect to reimburse the loan in full and on time. Lenders will want to see a clearly defined purpose for borrowing, either for the purchase of land, to develop construction projects, or to cover cash flow leakages. 

Moreover, providing a feasible exit plan, like the sale of an asset or the refinancing with a long-term loan, indicates to lenders the evidence that the business has a stipulated plan to pay back the loan within the agreed period.

2. Strong Collateral

Bridging loans are generally taken against some kind of collateral, for example, property or inventory, which is used as the security that will serve the lender if the borrower cannot repay. If an enterprise about to acquire a bridge loan has valuable assets that can serve as a guarantee, then its chance of getting a bridging loan grows. 

The quality and liquidity of the collateral will determine the loan amount and interest rate. The better the quality and the higher the liquidity, the bigger the loan and the lower the interest rate. To ensure a secure loan agreement, clear records of the collateral have to be available, including appraisals and ownership certificates.

3. Financial Stability

Lenders simultaneously analyze the business's financial condition and creditworthiness to evaluate the degree of reimbursement risk. Firms with very good cash flow, continuing stable income influx, and track records of due debt repayments are more likely to be eligible to apply for bridging loans. 

Credits could examine balance sheets and tax returns, credit reports, and business plans of the applicants to check the lender's credit standing and its ability to repay the loan. Maintaining a favorable credit history and addressing any credit concerns can increase the likelihood of loan approval.

4. Professional Advice

Securing bridging loans for business as a long-term strategy can guide business owners in the right direction through the complexities of the process by engaging the services of financial advisors, accountants, or loan brokers.  

Putting together all the legally required documentation such as the business plan, financial statements as well as property title deeds and loan agreements is critical to the successful real estate loan application process and it helps to demonstrate the credibility of the business.

5. Communication and Risk Assessment

Good and fair communication with mortgage lenders needs to be in place throughout the process of loan application. Businesses are expected to have detailed discussions with lenders about their financial position, the purpose of the loan, and the risks. 

The risk assessment of a project or investment should be done thoroughly to help identify possible risks and address them in due course. Lenders understand and will appreciate borrowers who have a realistic perception of the dangers involved and have contingency plans in case things do not go as planned.

6. Negotiating Interest Rates

While bridging loans provide immediate and urgent funding, they usually have higher interest rates and fees to be paid as against traditional bank loans. Companies should be able to compare loans from different lenders to get the best interest rates and more favorable conditions. 

Bargaining with lenders based on the firm's ability, the value of collateral, and market conditions may help reduce borrowing costs and minimize financial stress.

Final Thoughts

To conclude securing a bridging loan for your business requires careful planning, preparation, and attention to detail. By addressing the essential criteria discussed above, businesses can increase their chances of obtaining a bridging loan that meets their financing needs while minimizing risks and costs.
Contact Kinetic Finance today for a Bridging Loan query and more!