March 12th, 2021. Luke Egan
Exploring Short Term Finance: Are There Alternatives to Bridging Loans?
Here at Pure Property Finance, we love bridging loans. They’re speedy to secure, offer short-term solutions, and can be used for pretty much any legal purpose. However, we’re aware that not everyone holds this form of finance as close to their hearts as us and, sometimes, there may be a better-suited finance option. So, if you’re considering alternatives to bridging loans, you may like to read about the following options.
Bridge Loan Alternatives
A doer-upper can be picked up at a bargain price and prove a great investment for anyone with the skills and resources to upgrade the property. Many people will utilise a bridge to secure the property and renovate it, before refinancing onto a buy-to-let mortgage or selling a few months later. However, bridging loans alternatives such as a refurbishment loan could help.
Refurbishment finance is designed with renovation in mind. Therefore, you can design a finance deal that reflects the level of works to be done. Lending can be based on the end value of the property when completed, meaning 100% funding for build and professional costs is available.
However, applying for a refurbishment loan requires a lot more paperwork and takes longer to secure as a result. Therefore, if you need funds fast, a bridge may be better suited.
A common use of bridging loans is to boost working capital when cashflow is low. However, if you’re looking to purchase tools, machinery, product or office furniture and tech, you could be suitable for asset finance.
Asset finance allows a business to make purchase payments in instalments or to release cash from existing assets by selling them to a finance provider and agreeing to lease them back instead.
Key benefits of this option are that asset finance can be put in place relatively quickly. It allows you to offset payments against pre-tax profits, and will likely be cheaper than bridge funding. However, the full value of the asset cannot be offset and long term it can prove expensive. So, we implore you to be realistic about the value you require and for how long when deciding between asset finance and a bridging loan.
Again, if cashflow is down, you could apply for a bridging loan. However, if this drop in funds is due to owed fees, invoice factoring could help.
This will involve an invoice finance agreement where you sell your accounts receivable to a third-party factoring company. This organisation will give you an upfront payment and inherit the responsibility of chasing owed payments. However, please be aware, the purchase price will likely be lower than the amount owed.
Invoice factoring is lower risk than a bridging loan, no collateral is needed, and it avoids increasing any debt owed. However, invoice factoring can be quite expensive, so it is important to run the numbers and compare the cost to a bridging loan’s interest to see which makes more financial sense for you and your business.
Need Help Deciding Which Would Suit You Best?
If you require funding, but aren’t sure which type would suit you best, get in touch with our friendly and knowledgeable team. Our brokers will be able to talk through your specific requirements and outline the funding options available to you.
Article By Luke Egan
March 12th, 2021
Luke heads up our specialist property finance team where his focus is to drive our transactions valued between £100k and £5m.
Luke and his team manage enquiries from initial enquiry through to redemption. Luke also sits on the internal credit committee with Ben and Tom.
Luke joined Pure back in 2014 following a successful role in the Barclays property finance team that lasted over 8 years.See more articles by Luke