Cashflow is a major concern for many businesses. Bridging finance enables companies to quickly raise short-term funds until their cash flow improves.
Why do cash flow issues arise?
There are some common reasons why a business can have low cash flow. They may have spent a lot of capital expenditure on property refurbishments or expensive equipment. They could have bought too much stock. A lot of outstanding invoices may not have been paid. There can be seasonal lulls in trade. Unexpected tax bills can arrive.
During times of low income, there are bills that need paying including wages, rent, business rates, energy bills and suppliers need paying. If payments are late this could affect the credit rating of a business and make loans more difficult to obtain.
Fixing low cash flow
There are several strategies that a business can use to address low cash flow. Invoices can be chased up, or incentives for early payments introduced. Stock can be sold at clearance prices, and employees can be incentivised to sell more. If new customers want credit, then you can encourage them to use a credit card, which means that your business gets its money, but the customer can delay payment.
If you are a business that provides services such as repairs, electrical work or window installations, take a deposit before starting the work.
A business can raise its prices as long as it remains competitive or has a reputation for quality products or services that customers are prepared to pay extra for.
If it is a low season for a company, it can offer off-season discounts to encourage sales.
Using bridging finance
After you have taken actions to increase cash flow, it may take a while before the business income is significantly increased. To help during this interim period, a bridging loan can be used to raise capital.
The bridging lender will need to approve the plan for raising cash flow and will need an asset to use as security, normally property, but other assets can be considered.
A bridging loan can be for a period from a few weeks to 18 months. Interest is only charged whilst the loan remains unpaid. The lender is more concerned about the asset used as security, and the ability to pay the loan back, rather than what it is being used for. After you receive the loan funds you can use the money to pay bills, renovate business premises, pay wages or any other business expense.
Interest rates for bridging loans will generally be higher than long-term loans such as mortgages and bank loans. A bridging loan is usually for a short time only, so the total interest paid may not be that large.
If a bridging loan saves your credit record, or in extreme cases saves your business from liquidation, it is well worth paying interest on it.
To find out more about bridging finance for businesses, talk to Ascot Mortgages who can arrange a bridging loan for you.