What the Commercial Bridging Finance Industry is About and Why You Should Care

UKWith so much information being bombarded to us, it’s a blessing that our brains are equipped with a means to automatically and subconsciously filter what we receive and more importantly what we retain. But if there’s something that an entrepreneur and investor needs to consciously seek information about these days, it would be the commercial bridging finance industry. But why should we care?

Commercial bridging finance is a service, that as its name suggests, provides funds for commercial purposes. What sets it apart is its short term and interim nature which makes it very effective for immediate short term liquidity needs. What does this mean? A bridging loan is a funding option taken pending the arrangement of a bigger and permanent financing. We know how long it often takes to arrange cash and this pertains to both income and credit sources. This can spell trouble because many needs can be immediate with others even unforeseen, for instance emergency disbursements.

What commercial bridging finance does is bridge the gap created by the timing constraint so a transaction or need becomes viable as need be. Still confused? Allow us to apply it to a real-life setting in two ways as follows.

Case No. 1 – A shoe company received a massive order from a new client which would require it to acquire additional raw materials, labor and equipment on top of its usual production needs. The business then goes off to pool resources from its sales and retained earnings fund. Since these are big ticket and/or bulk purchases, they would often constitute a down payment. As production needs to start early for it to stay on schedule, the business may use a bridge loan to finance the down payment while it arranges for adequate resourcing.

Case No. 2 – A real estate investor wants to acquire a series of commercial assets to add to their investment portfolio. But this, as we all know, is both a complex and costly venture as pre-acquisition costs are very real. To avoid losing the opportunity to other interested buyers, the investor makes use of commercial bridging finance to provide for the initial costs of the purchase (e. g. security deposit, down payment, research costs, and professional fees).

In essence what the commercial bridging finance industry does is provide opportunities to people and organizations when they are in the midst of a time constraint between needs and funding.

Breaking Commercial Bridging Finance Myths

Acommercial loanWhen it comes to raising funds by virtue of credit, people have two main options and this is based on the factor of time namely long term and short term financing. One of the more common and widely used form of the latter includes what we call commercial bridging finance.

Providing what people refer to as bridge loans, it is a type of interim financing arrangement that allows borrowers to attain short term funds to fulfill their short term liquidity needs by connecting a need coming due and one’s bigger and permanent source of funds.

But despite of its widespread use, several myths continue to haunt commercial bridging finance so we took it upon ourselves to go bust these misconceptions. After all, how will people realize the benefits it can bring if they are filled with lies that fuel their misunderstanding about the service? To keep our facts straight, here take a look.

“They pile more debts.”

Although a type of loan, it’s not safe to assume that they’re just another liability. They’re unlike any other as they are a type of interim finance. Eventually, they will be closed by one’s main funding source the moment it becomes available. Because they are temporary and short term in nature with a period of often between two weeks to three years, it becomes less burdensome.

“They’re only meant for commercial asset acquisitions.”

Commercial bridging finance is specifically designed and catered for investors and entrepreneurs who wish to buy assets for office and business purposes. However, bridging loans in general can be used for an array of different purposes.

“They are financially hefty.”

A loan, regardless of type and size is a legal and binding obligation. But that doesn’t mean that they are all burdensome. Others may be but there are those that prove useful and beneficial instead of a burden just like bridge loans. They do come with interests but what makes them a delight to use lies in their short term and temporary nature. After computation, they prove to be cheaper since the interest rate is applied to a lesser number of months or periodic intervals.

“Paying them is difficult and meticulous.”

This is the most outrageous and silly of misconceptions about commercial bridging finance. Flexibility comes with these loans in terms of repayment. Borrowers have the option to pay it out before maturity as early as they can and want to or at maturity once permanent funding has been released and made available.

More at Alternativebridging.co.uk.