Bridging loans for business purposes are becoming increasingly common. This type of finance offers companies a fast and flexible high value cash injection to sustain profitability and enable quick growth.

A bridge will allow businesses to capitalise on much lower purchase opportunities by having immediately available funds at their disposal. This is essential whilst awaiting longer term finance or return on investments.

This form of finance is growing in popularity given the current market conditions that are preventing more traditional lenders issuing loans to SMEs, which may prove counter-productive to a stalling economy.

In particular, bridging loans for merging businesses is in increasing demand due to current limited opportunities for individual prosperity. It is essential brokers are aware of the products available to SMEs to sustain their business proposition and aid long term growth.

Bridging finance provides businesses an alternative to venture capitalist funding which can often prove timely in forecasting long term revenue. The uses of bridging finance for commercial purposes are vast, however, the main uses include;

● funds to acquire new business premises, also termed ‘land acquisition’

● purchase additional shares, assets or bonds

● buy out other investors or partners, also termed ‘management buy-out’

·       ● merge with another company

·       ● rebranding/rejuvenation of existing business model

·       ● sustaining cash flow between successive private equity investments

       

● bridging the gap between redemption of one bond and replacement by a new issue

Bridgebank Capital has recently launched a new acquisition product ‘ACQUI10’ which aims to help SMEs. We spoke to Carl Graham, Business Development Executive at Bridgebank Capital, to give us some more insight in to how the product might benefit growing businesses.

He explained, “In essence our ‘ACQUI10’ acquisition product is like any other bridging loan insofar that it offers a quick and flexible financing option. However, this product differs slightly as it is deliberately geared towards commercial tenants who are looking to purchase their business premises from their landlord.”

 

Essentially, this product will offer financing for land acquisition so that businesses can maximise cheaper purchase prices. Carl added, “Landlords will often offer their long term tenants the opportunity to buy the property at a discounted price, in order to complete a fast and secure sale.”

Stressing the need for a bridging loan in such circumstances, Carl said, “In return for the discount they will often impose strict time constraints, and our acquisition bridging product provides a suitable solution.”

By choosing a product like the one currently offered by Bridgebank in the circumstances outlined above, your client may even benefit from a bridging loan that could cover the entire purchase price.

Carl said: “Traditional commercial mortgage providers will advance a loan based on the purchase price. The advantage of our ACQUI10 product is that the lending decision is based on the OMV, and for good quality borrowers, our typical LTV of 65 per cent will often cover the entire cost of the purchase, with little or no capital input.”

Another benefit to acquisition bridging is its ability to provide a finance facility to purchase another business or additional assets your client has identified as profitable. However, there is a growing trend of investment bankers who are initiating effective buy outs with the use of bridging loans in an attempt to diversify and obtain new funding streams.

Such advice should be heeded with a health warning as there is a potential conflict of interest here. The ability to foresee a large growth in a business may not only benefit the banker professionally, but will also provide steep financial rewards as bridging finance is highly profitable for the lender.

Clients should be advised that this method of finance is costly and should only turn to this method of funding for growth if their business plan is viable and has been sufficiently stress tested.

Nevertheless, the future of acquisition finance for SMEs is bright. Government plans to provide £250m loans to SMEs which may dent this market sector, but competition between lenders can only mean better products for your client.

 

By Alexandra Jones