Crowd-Funded Bridging Loans – Can it Work For You?
The world of peer to peer lending has become more and more crowded in the past five years, as what was once a small, innovative market becomes a major financial sector. Increasing competition has led to greater diversification, and there are now many specialised lenders that cater to particular borrowers.
Businesses of all sizes can take advantage of the benefits which P2P lending brings, with platforms such as Funding Circle providing loans to British companies up and down the country. In addition to this, businesses can also take out “bridging loans” from lenders such as LendInvest, which is an exciting and flexible form of finance that can help businesses to grow quickly.
What is Bridging Finance?
With its roots in 1960s London, bridging finance is essentially a large short-term loan, usually secured against real estate (though sometimes other assets may be used as security). It’s used to “bridge the gap” before long-term finance can be obtained, hence the name.
A common purpose for this form of finance is to allow a business to purchase a property which is in unmortgageable condition. In many cases, a property which can’t be mortgaged can be purchased for a bargain, but must be restored before a loan can be secured against it. By making the initial purchase with a bridging loan instead, businesses can expand into new premises quickly, and take advantage of opportunities as they become available.
What Else Can Bridging Be Used For?
Bridging finance is incredibly versatile, and can be used for any number of different applications. Another common use is to free up capital, and the P2P lender FundingKnight offers precisely this service amongst other bridging products. Businesses can take out a fully asset-backed loan to inject cash into their company, allowing them to expand quickly and confidently.
What to Watch Out For
Bridging finance is inherently riskier than a mortgage because lenders forego the strict criteria which high street banks must use and instead judge each deal on its own merits. This makes it more expensive, and borrowers should expect to pay a substantially higher rate of interest. This is offset by the usually short terms of bridging loans, though, which are rarely for more than 12 months, and also by the unique flexibility on offer – in many cases, bridging finance is the only way to secure a property in a timely fashion, which is often the difference between a deal made and a deal lost.
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