Making bridging loans work for startups

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One hurdle that startup businesses face is raising capital. A bridging loan could be the answer.

After an initial round of funding, a startup company may have started trading, but more money may be required until it starts making a profit. A bridging loan is one finance option available.

Bridging loans are more flexible than a bank loan or an overdraft, since they can be for a fixed term or can last for an unspecified amount of time, though repayment will usually be expected in less than three years. Security, usually in the form of property that the business or one of its partners owns, will normally be required to secure the loan.

A bridging loan can be arranged quickly, but there needs to be a clear strategy of when and how it will be repaid. A bridging loan can be ideal for the situation where a major contract has been secured and there is a known time when payment for it will be made. The loan can give the startup company the financial breathing space to develop the projects needed to fulfil the contract.

Interest will need to be paid on the bridging loan, but current interest rates are low. A bridging loan is therefore a short-term financial solution that can be used for many purposes for the startup business, including purchasing property or equipment.

The best place to obtain advice about bridging loans is from a broker who can match a startup’s needs to the right lender.

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