Financial gaps are part and parcel of running a business, triggered, depending on the business, by seasonal fluctuations in contracts, low profits, sometimes even fast growth. A very real challenge to businesses, especially SMES without adequate savings to tide over times of crisis, financial gaps can bring operations to a grinding halt.
Bridging loans are short term, quick access loans that are specifically designed to help companies cover temporary cash flow gaps. In this article, we’ll explore how bridging finance can help your company stay afloat.
Say, for example, your business is facing a seasonal slow down in profitability, or a delay in invoice fulfilment. A bridging loan will allow you to pay rent, utility bills, disburse wages, whatever it takes to keep your business running until your dues come in or sales improve.
Many businesses need to acquire more real estate to fulfil the growing demands of business. However, the acquisition of commercial property comes with its own additional costs, which are sometimes time sensitive including urgent downpayments, legal fees, administrative charges, stamp duties and others. Growing the business also required funds for additional personnel and inventory.
Companies can use a bridging loan to cover all these costs first, while waiting for their commercial property loan to be approved. This way, they can avoid stretching or burdening their company expenditures, allowing operations to continue unimpeded.
For many SMEs, a breakdown in crucial machinery or damage to business premises is problematic. Without the requisite funds to address the issue, it can affect sales or require a brief suspension of operations. In other situations, your company may be in need of essential upgrades to meet or reach a certain threshold for quantity or quality. And, sometimes, these upgrades just can’t wait.
Bridging loans allow you to finance these essential repairs and upgrades, minimising down time and sustaining normal business activity.
Under certain circumstances, companies may need a large sum of funds to, for example, obtain raw materials, purchase stock or hire additional manpower to meet demand. In cases where clients and customers pay only after their orders have been fulfilled, business owners have to carry the cost of production, which can really affect company reserves.
Bridging finance is an easily accessible, fast approval loan that will allow you to cover the costs of fulfilling these orders without disrupting your business cash flow and finances. It allows you to successfully fulfill customer expectations in a way that does not disrupt your operations..
One of the key elements of keeping a company functioning is maintaining good relationships with different stakeholders, especially suppliers and creditors. Bridging finance allows business owners with cash flow or income related issues to clear off urgent invoices and debts that they owe, so that their business can continue to function and generate revenue.
Settling these urgent financial obligations can also help SMEs avoid insolvency, and steer through temporary challenging times with some financial breathing space.
In a competitive business landscape like Singapore, remaining stagnant is a significant risk. It can lead to decreased profitability, loss of market share and even failure, if not addressed. However, research and development costs money, time and resources—an undertaking that might come across as questionable for businesses short on funds.
A bridging loan can finance the initial parts of these expansion plans, especially before more substantial financing is approved. This way, companies can achieve their dreams of growth and thrive in their chosen fields, with the financial help they need.
As with all types of loans, Bridging Finance comes with its own benefits and drawbacks, which borrowers will have to consider carefully before applying.
The benefits of a bridging loan is that it is a small loan, and is therefore relatively quicker and easier to approve. You can expect short repayment tenors lasting from a few months to 2 years at most, meaning that you can settle them much faster. Since these loans are small with lower risks, approvals and disbursements can happen within hours or a couple of days at most. Creditworthiness requirements are also not as stringent, due to much the same reasons, allowing a wider range of businesses to access funding.
On the other hand, the interest rates of temporary bridging loans can be relatively higher than conventional loans, reaching up to 3% per month. Most bridging finance are also secured loans, typically with some form of business assets like commercial property or equipment. Therefore, businesses risk losing valuable assets should they default or be unable to make repayments for one reason or another.
There’s no doubt that, when used correctly, bridging finance is useful in challenging times. They are low risk to lenders which means high approval rates and quick disbursements. We highly recommend comparing and contrasting the different options to get the best rates. And that’s, precisely, what we do best.
With more than 50 lenders registered on our platform, a quick, simple 5 minute with Singpass opens access to a plethora of competitive options tailored to your unique needs.
As the saying goes, the proof of the pudding is in the eating. Sign up today to learn how we can help your business thrive and succeed.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
