Please note, the information in Bridging Loans vs. Traditional Secured Commercial Loans – Understanding the Differences is for general guidance only and should not be taken as financial advice. Always seek professional advice before making any financial decisions. Your capital is at risk.
What are Bridging Loans?
Bridging loans are short-term financial solutions designed to “bridge the gap,” often used for purchasing a new property while waiting for the sale of an existing one. They are also commonly utilised when acquiring a property in a short timeframe, with the intent to quickly refinance onto a longer-term commercial loan. Typically, the term of a bridging loan ranges from a few months up to a year. Interest is usually charged monthly, with a single lump-sum payment due upon property sale or refinancing, which is expected to occur before the loan’s expiry.
Bridging lenders can offer fast approval and dispense funds swiftly to borrowers, enabling completion in days rather than weeks. They operate with minimal serviceability requirements, focusing primarily on an asset’s value. This allows them to recoup their loan quickly if necessary. Bridging loans are particularly valuable to property investors, developers, and individuals with urgent funding needs who must act quickly on opportunities. However, it’s important to note that bridging loans typically come at a higher cost than traditional secured commercial loans. Furthermore, lenders may offer limited flexibility regarding defaults or extensions if things don’t go as planned. As such, borrowers must carefully assess the risks, as the security assets provided are at stake.
What are Traditional Secured Commercial Loans?
A traditional secured commercial loan generally has a longer term, ranging from a few months to several years. These loans tend to offer lower annual interest rates compared to bridging loans. However, they usually take longer to arrange, as lenders conduct a thorough financial assessment of the business and its ability to repay the loan, focusing on more than just the asset.
Depending on the loan size, various financial and non-financial covenants may be imposed on the borrower. These covenants are regularly monitored, allowing the lender to closely oversee the borrower’s financial health and take action if needed.
Specialist Short-Term Funders
In addition to traditional commercial loans and bridging loans there are now funders who specialise in short-term finance. These lenders occupy the space between bridging loans and longer-term commercial loans. While they still require security, they typically take the time to understand the business, the people behind it, and the opportunity being pursued. Consequently, they may offer more flexibility when things don’t go as expected and are more likely to extend facilities if needed. It’s essential to consider which type of lender best suits the specific opportunity you are seeking funding for.
What Type of Lender is Fresh Thinking Capital?
Fresh Thinking Capital is a short-term lender that operates between traditional commercial loans and bridging loans. While we can provide a straightforward bridging loan if needed, most of the opportunities we support require a more flexible approach. We collaborate with like-minded entrepreneurs, offering flexibility around exits and repayment dates, which was a key reason Fresh Thinking Capital was founded by Mel and Andrew. We identified a niche between these two types of funders. We can move as quickly as bridging loan lenders but provide the flexibility that businesses may need when faced with challenges.