Bridging in a Difficult Climate – Commercial
There are numerous uses for bridging finance. Current market conditions mean that many companies are turning to short term funding as an alternative to securing the backing of uncooperative and cautious mainstream lenders, and there are some alternative uses for bridging finance that are becoming more prominent as a result.
Refinancing
Bridging finance is a stop-gap solution for companies that want to refinance their long term lending. Given the rapidly changing economic conditions, many firms are reassessing their banking arrangements and concluding that their existing facilities may need to be restructured. Whether they decide to renegotiate with their current bank or transfer their business elsewhere, an organisation needs time to review the available options and structure their new arrangements. It is during this period that a bridging loan can be used to give them the breathing space they require to negotiate the most favourable long term deal.
Cash Flow Solutions
Bridging finance can be used as a short term cash flow solution. Businesses still need short term capital to push through projects and acquire stock or other materials; but the word at ground level is that many firms are still experiencing considerable difficulties in securing the facilities they need from their banks. A bridging loan still retains the advantages that it can be secured on any suitable property and can be completed rapidly.
Meeting Unexpected Costs
As has previously been the case, we are still seeing examples of companies using bridging finance to meet large or unexpected tax demands and other types of bills. Given the squeeze on working capital that many firms are undergoing the use of short-term funding to meet shortfalls when it is time to pay the bills is likely to increase. We have also seen a rise in the number of companies using bridging finance to cover an unexpected hike in the cost of an important and potentially business critical contract that is due for renewal.
Credit Repair
Bridging finance can also be used as a credit repair product. Many companies are realising that although credit conditions are beginning to ease, the banks will continue to apply exacting standards when deciding who to back, and will be scrutinising the credit profiles of potential borrowers more closely than ever before. A growing number of firms are, therefore, taking steps to address minor imperfections on their credit records that have resulted from the challenging conditions of recent months, thereby ensuring that they will qualify for the maximum level of support that their bank can offer. For those with some outstanding equity in their premises and a track record that is generally favourable, short term funding is proving to be a popular means of accomplishing this. By maintaining the repayments on a bridging loan, an organisation demonstrates its ability to service a debt and can build up a healthy credit history before it seeks to finalise an ongoing arrangement with a mainstream lender. We’ve seen instances where banks agree a specific refinancing package on the basis that the client proves they can successfully service a short term loan, but any company that is considering using short term funding in this way needs to be absolutely clear on what their refinancing options will be.
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