Can I Use a Bridging Loan for a Business Purposes?
21st November 2024
By Simon Carr
Can I Use a Bridging Loan for a Business Purposes?
Understanding Bridging Loans for Businesses
A bridging loan is a short-term financial product that helps businesses cover immediate funding gaps. These loans are commonly used for property purchases, managing cash flow, or funding business expansion. Their flexibility and quick approval process make Business Bridging Loans appealing for time-sensitive financial needs.
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Regulated and Non-Regulated Bridging Loans
Bridging loans are divided into two categories: regulated and non-regulated.
- Regulated Bridging Loans: These loans are governed by FCA rules and apply to properties where the borrower does or has plans to live.
- Non-Regulated Bridging Loans: Non-regulated loans are used for commercial purposes, such as buying investment properties or funding developments.
Understanding the right type of loan is essential for meeting your business objectives and regulatory requirements. Non-regulated bridging loans lack FCA protections, so borrowers must carefully review terms and risks. Businesses must fully understand costs, responsibilities, and repayment obligations before proceeding.
Common Uses of Bridging Loans for Business Purposes
Bridging loans offer solutions for several business scenarios.
- Commercial Property Purchases: Businesses use these loans to quickly secure retail spaces, offices, or warehouses.
- Property Development: Developers rely on these loans for purchasing, renovating, or selling properties in competitive markets.
- Business Expansion: Companies use bridging loans to fund equipment purchases or open new locations.
- Cash Flow Management: These loans help businesses cover urgent costs while waiting for incoming revenue.
Benefits of Using a Bridging Loan for Business Purposes
Bridging loans for business purposes have several key advantages.
- Quick Funding Access: Approval and disbursement are faster compared to traditional financing.
- Short-Term Solution: These loans are ideal for funding needs lasting 3 to 18 months.
- Flexible Repayment Options: Borrowers can often make no interest payments during the loan term and repay after completing projects or securing long-term financing.
Risks and Considerations
While bridging loans are helpful, they involve some risks.
- Higher Interest Rates: These loans generally have higher interest rates than traditional alternatives.
- Additional Fees: Borrowers may face arrangement fees, legal costs, and exit charges.
- Repayment Challenges: Failing to repay on time could result in penalties or asset repossession.
Careful planning and financial assessment are critical before committing to a bridging loan.
Compliance and Regulatory Notes
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Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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