What To Consider When Taking Out A Bridge Loan

One of the most vital measures of a business’ survivability is its cash flow, as even a slight disruption during a company’s early stages can cause considerable financial trouble, even if they are otherwise financially healthy.

With the last two years seeing several companies, particularly those working in hospitality, facing cash flow disruptions amid other operational changes and halts, owners, chief executives and directors often look for potential contingency plans.

One possible option for very short term issues is the bridge loan, which is a short term loan with a repayment term of less than a year, backed by collateral and primarily intended as a quick fix until more permanent financing is obtained.

Whilst often related with cash flow troubles such as inventory acquisition, maintenance and payroll, bridge loans can also be used for expansion and are a common way for homeowners to buy a new home whilst in the process of selling their current property.

As with any high-interest, short-term loan, getting bridging loan advice is essential, and here are the main considerations to keep in mind when taking out a bridge loan.

They Can Be Easier To Qualify For

Bridge loans in almost every case require collateral and fast repayment. Because of this, debt-income ratios, credit score and borrowing history are far less important to lenders than they would be for mortgages and other long term loans.

They Can Be Approved Quickly

In a crisis cash flow situation for a business, days can be the difference between survival and liquidation, and a bridge loan can be made available as quickly as in a week, as they avoid a lengthy approval process, in no small part because they need to be paid back almost as quickly.

Take Into Account The Terms

Bear in mind that not all bridge loans are the same, particularly given that some uses are more critical than others.

Some can come with early payment fees, others have variable interest rates, so whilst time is often of the essence, it is also prudent to shop around if you can or get professional advice. Some will even allow you to extend your bridge loan albeit with a fee to do so.

Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

A fee may be charged for mortgage advice. The exact amount will depend on your circumstances. I.I Financial Services Limited is an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales company no. 10817448. Registered office Expressway G15, 1 Dock Road, London, E16 1AH