For the past few years the business finance market has been characterised by a reduced availability of credit and it’s not only struggling companies which have been affected. Otherwise healthy businesses have also felt the squeeze from less liquidity in the banking sector and as a result many have struggled to achieve their potential.

Reports that the UK is officially moving out of the recession and bank lending is on the increase are to be welcomed, but for many businesses on the ground, obtaining funding is still a challenge.

Some savvy entrepreneurs and SMEs have met this challenge by turning to alternative methods of funding such as bridging. Bridging finance refers to short-term loans, usually secured against property, which are a means of drawing down capital quickly and flexibly.

This type of finance has long played an important role in the property industry, helping investors to turn transactions around quickly. Now, as many businesses are finding traditional funding negotiations to be more protracted, it is gaining wider appeal among the corporate market.

Bridging loans are particularly suited to businesses that are ‘asset rich’ but relatively cash or time poor and have highlighted the need for short-term support. Growth-hungry SMEs and entrepreneurs are using it to take advantage of any opportunities that are arising. 

Over recent months we have dealt with businesses seeking bridging loans for a wide range of uses, from stock purchases to acquiring distressed sale assets.

For example, one company had an opportunity to buy a property adjacent to their existing premises that had come on the market at a good rate. They needed to move quickly but didn’t have the cash flow to do so. Obtaining a short-term loan while arranging long-term finance allowed them to purchase the property and achieve their growth ambitions. 

Time can be an obstacle to facilitating growth and expansion. Bridging loans are typically turned around in seven to ten days while traditional bank funding might take up to six weeks to process.

For businesses that are going through mergers or takeovers or proceeding with management buyouts (MBOs) or buy-ins (MBIs), it is often necessary to raise substantial capital swiftly. Funds can be raised based on the existing business’s balance sheet or directors assets whilst due diligence is carried out for a long-term funding package.

It is not only growing companies that use bridging finance. Businesses that are downsizing or going through transitional periods are using short term finance to help them manage change. If a business needs smaller premises, it may need to obtain a bridging loan to move while its original site is sold, saving long-term operational costs.

Similarly, bridging finance can be a vital tool for businesses in crisis - whether it is to deal with a large tax bill, legal fees, cash flow emergencies or even to avoid repossessions or administration. The speed and flexibility in which a loan arrangement can be made can be the difference between a business’s survival and its collapse.

If a business does decide that a bridging loan is the solution for them then it should look for a provider that has complete transparency of loan structure and terms and can offer a speedy arrangement. A lender should have a good reputation and work with respected legal partners.

Choose a provider that is a member of an accredited body such as the Association of Short Term Lenders (ASTL) and always look to deal directly with decision makers so that they can best understand your business and find the right solution to meet your needs.