Many business owners unfamiliar with the various types of loans out there will ask the question what is a bridging loan? Here is a brief guide to bridging loans and how they can be used to help your business.
The best way to think about a bridging loan is to imagine a bridge that allows you to get from one place to another. The main reason bridging loans are used widely by businesses is to get themselves from point A to point B. The finance provided by the bridging loan is the bridge they then step on to get to the other side.
The loan is intended to allow your business to get to the next stage of growth until you can then secure a longer term form of finance to help you reach your business goals.
Bridging loans can be secured much faster than standard loans which means they are great for those businesses that need immediate cash and don’t have the time to wait around too long for decisions.
Bridging loans can be used by property development or other commercial operations as long as there is an exit strategy in place. Another drawback with a bridging loan is the higher interest rates charged on the amount borrowed.
What is a start-up loan? How does a start-up loan differ from a conventional loan if at all? Find out more in this short guide to start-up loans.
What Is A Start-Up Loan?
There are many different types of loans an load products on the market which can be used by start-up founders to fund their business. A start-up loan however is a traditional type of loan from a traditional lender however there are different types of loan available depending on the needs and financial position of the business. Start-up loans are not to be confused with other newer forms of loans such as crowd funding.
What are the various types of start-up loan?
One of the more popular types of loan for a startup is a line of credit. This essentially works in much the same way as a credit card. A set amount of money is available to the business owners to use when they need it. Agreements are often interest free to begin with but can come with a sting in the tail when this period is up and interest becomes chargeable.
Equipment financing is a type of loan that allows a business to purchase the equipment it needs to function with the loan used as collateral. This type of loan is usually available at a lower interest rate than many alternative types of loans. The purchase can then be paid off as the business hopefully gorws and starts generating income. The depreciation of equipment can also be offset against tax which is another benefit of this type of loan.
The great benefit of this loan is that rather than fronting the cost of equipment before your business opens, you are able to pay off the cost as your business grows and makes money.
While securing a loan for a mature business in good health is relatively straightforward, for smaller businesses and start ups going to the bank for a business loan can often end in rejection and disappointment.
In the past this would usually lead to business owners giving up on their growth and expansion plans unaware there might be alternative sources of funding readily available. This is why the government came up with a scheme that referred those businesses that were turned down for a bank loan to smaller lenders or companies offering alternative sources of finance such as asset finance.
The referral scheme was introduced in November 2016 and according to the government it has been successful in sourcing £15 million of funding for small business with loans ranging from £100 to £1.3 million.
Such is the demand for funding in the small business sector, the amount loaned via the referral scheme quadrupled in its second year with 670 businesses benefitting from the extra funding in the last 12 months alone.
These results while amounting to a small proportion of the amount of money being lent to businesses each year show just how many businesses might not have received the vital funding they needed to develop.