Bridging Loan
A bridging loan offers immediate short-term funds for a business to cover their shortfalls. It’s often used for property transactions to ensure a seamless transaction between sale and purchase.
What is a Bridging Loan?
A bridging loan is a type of short-term business loan, designed to provide immediate cashflow while waiting for a more permanent financial solution or event to occur.
It essentially, "bridges" the gap between the need for cash now and the future receipt of funds.
These loans are typically backed by an asset, and they are commonly utilised in real estate transactions to enable individuals to acquire a new property before selling their current one.
Bridging Loan Example
Background
A prominent property owner known for developing projects in the south-west UK. They recently acquired a prime seaside plot, envisioning it as the location for their next upscale residential complex.
Challenge
While this new plot was secured, they were in the process of selling a previously developed property. The sale was already underway, with a buyer secured, but the funds from this sale were going to be delayed by three months. The developers agreed to start the building project and the delay risked losing the developer.
Solution
Due to the immediate cash flow gap created by the property sale (guaranteed) and the commencement of the new project, opting for a bridging loan to cover the initial expenses prevented any project delays.
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