The rise of commercial bridging finance is no longer a surprise. Given its long list of benefits, it is easily any entrepreneur’s favorite and this applies regardless of the type of industry or the size of a business.
But even something as effective and beneficial as commercial bridging finance will cease to be the hero that it is if used incorrectly. That said we’re here to warn you about when and how not to utilize it. Read up and be forewarned.
Don’t use it for what it isn’t. With anything else, a good tool will prove futile if used for something which it wasn’t designed for. Commercial bridging finance is first and foremost a temporary borrowing. This means that it is one taken out for a period of two weeks to three years to fulfill immediate short term liquidity needs. It should not be used to replace a long term credit or any long term fund source.
Why? The method falls under the category of interim financing. This means that it is one used to provide for immediate needs that must be fulfilled to facilitate a transaction while one’s main cash source, say a mortgage or an upcoming payment, is still on its way. It works as a stop gap measure that allows entrepreneurs to grab an opportunity before it expires or before anyone else beats them to it.
Additionally, commercial bridging finance has a slightly higher interest rate compared to mortgages, bank loans and similar long term borrowings. This is because there are more risks assumed and absorbed by the bridging provider. However, this does not mean that they are more expensive. Gross-wise, they are cheaper given the short amount of time compared to long term credit which can spread up to fifteen or twenty years. If the temporary loan is used in the long term however, that fact will cease to exist.
Now let’s take a closer look at its name. Bridging loans can be used for a wide variety of purposes but in this case, it is used in the purchase or acquisition of commercial properties. We can all vouch that such investments take a lot of financial resources and that these can be hard to pool. It takes time. Even the arrangement for credit takes considerable time. That said commercial bridging finance funds should be used only in all things pursuant to the acquisition. It should not be allocated for other purposes to avoid both wastage and shortage of resources.