Bridging loans explained: are they the right choice for end-of-year cash gaps?

The end of a year can stretch company finances to the limit. Making your biggest annual supplier payment to ensure youʼre well stocked for Christmas and rewarding staff with bonuses or pay rises can hit the company bank account hard. The revenue from those seasonal sales wonʼt land in your bank account for a month or longer and there might well be a tax bill on the horizon too, all of which can leave a big gap in your cash flow.

If youʼre faced with this situation, an often misunderstood type of finance might be the solution. Commonly thought of as short-term finance to secure property before taking on a longer-term loan like a commercial mortgage, bridging loans can actually be used for a range of purposes, including plugging seasonal finance gaps. Increased awareness of their versatility means theyʼre becoming more popular, with bridging loans predicted to increase by 25% in the next five years. 

Whether theyʼre right for you will depend on your particular situation. This guide walks you through what bridging finance actually involves, when it might work for your business, and what alternatives exist if itʼs not quite what you need. The key is understanding your options well enough to make the right call for your circumstances.

Key points:

• Bridging loans are short-term loans and youʼll need to offer collateral as security for the lender

• They can be used for a range of business purposes, not just to buy property

• Funding Options by Tide can help when optimisation of working capital isnʼt enough, offering access to business finance up to £20 million

What are bridging loans?

As the name suggests, a bridging loan bridges a gap when you need funds. Theyʼre short-term loans (typically 3-18 months) that can be used as a stopgap to cover you until longer-term funding comes through or an expected payment arrives. 

The defining feature of bridging finance is speed. Unlike traditional business loans that can take weeks or months to arrange, bridging loans can often be arranged in days. But this convenience can come at a cost, as interest rates tend to be higher than standard business loans, from 6-18% annually, depending on your circumstances and the lender. 

Bridging loans are secured, meaning youʼll need to put up an asset as collateral – typically property, equipment, or other valuable business assets. 

Are bridging loans a good solution for seasonal cash flow gaps?

The main advantage of bridging finance is that itʼs fast and flexible. That means you can get funds quickly to deal with urgent needs or take advantage of opportunities youʼre presented with, without going through lengthy approval processes. Bridging can also help with things like avoiding late payment penalties that might jeopardise supplier relationships youʼve spent years nurturing. 

Hereʼs how it might work in practice. Imagine youʼre a manufacturing business being offered a £50,000 contract that will require you to buy materials upfront in November. Your client wonʼt pay until the workʼs done in February, but your suppliers want payment within 30 days. A bridging loan could cover that material cost, letting you take the job without stretching your working capital to breaking point.

Another common scenario involves property – maybe youʼve found the perfect new premises at a great price, but your current building wonʼt sell until spring. A bridging loan secured against your existing property could let you make the purchase now rather than missing out on the opportunity to a competitor. Theyʼre sometimes used alongside other forms of finance. For example, if the premises youʼre excited about needs some work, property development finance can provide the funds needed to make the building and any land or outbuildings fit for purpose.

However, the cost of bridging loans can add up quickly. If you agreed a rate of 12% annually on £50,000, youʼre looking at around £6,000 in interest over a full year, or £500 per month if the loan stays open. If your expected payment gets delayed or your property takes longer to sell than anticipated, those costs keep mounting and can eat into whatever profit you were expecting to make. And if you canʼt repay when the loan term ends, you could lose whatever asset youʼve put up as security. 

Bridging loans can often work well for short-term, predictable gaps where youʼre confident that money is coming into your business. They tend to work less well for ongoing cash flow problems that need a more sustainable solution rather than expensive sticking plasters.

What youʼll need to qualify for a bridging loan

Getting approved for a bridging loan depends heavily on having a clear exit strategy as lenders want to know exactly how and when youʼll repay them. Theyʼre not expecting crystal ball accuracy, but they do want evidence that youʼve given it serious thought and got your sums right. Hereʼs what youʼll need to provide:

• Recent business accounts (usually the last two years)

• Bank statements showing your cash flow patterns

• Details of the asset youʼre using as security, including professional valuations for property

• Documentation proving how youʼll repay the loan, such as sale agreements, client contracts, or other funding commitments

• Your personal and business credit history (though this isnʼt always the deciding factor if you have strong security and a solid exit plan)

If youʼre putting up property as security, lenders typically lend up to 60-75% of the assetʼs value, so a £200,000 property might get you £120,000 to £150,000. If your applicationʼs successful, expect to have an offer within 48-72 hours and funds in your account within 1-2 weeks. Having your paperwork ready to go makes all the difference as chasing down valuations or historic accounts can slow things down considerably.

Alternatives to bridging finance

Bridging loans arenʼt your only option for managing year-end cash gaps. Depending on your situation, these alternatives might work better for you:

• Invoice finance: Access revenue tied up in unpaid invoices immediately, typically releasing 80-90% of their value within 48 hours

• Business line of credit: Setting up a credit line gives you flexible access to funds as you need them and you only pay interest on what you use

• Business loan: If you do have time to wait a few weeks for approval, traditional term loans offer longer repayment periods and lower interest rates than bridging finance

Find business finance with Funding Options by Tide

Whether youʼre looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, weʼre one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers.

Checking if youʼre eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility wonʼt. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

Find business finance.

FAQs

How quickly can I get a bridging loan?

Most bridging loans can be arranged within 1-2 weeks from application to receiving funds. Some specialist lenders offer an even faster turnaround if you have all the documentation ready and information about the asset youʼre putting up for security is uncomplicated.

Whatʼs the typical interest rate on a bridging loan?

Rates usually range from 6-18% annually, but this varies based on factors like the amount youʼre borrowing, the loan-to-value ratio, and your creditworthiness. Itʼs worth shopping around, as rates can vary quite a bit between lenders even for similar circumstances.

Can I get a bridging loan without property as security?

Some lenders accept other assets like equipment or inventory as security, but these come with higher rates and stricter eligibility criteria. If youʼve got property to use as security, you could get a better deal.

What happens if I canʼt repay the loan on time?

If you think you wonʼt be able to repay when the loan term ends, always let your lender know as soon as possible as they might be able to offer options like an extension. If you donʼt, you risk losing the asset youʼve put up as security. 

Are bridging loans only for property purchases?

No theyʼre not. Businesses use bridging loans for various short-term needs including covering cash flow gaps, buying equipment, funding stock purchases, or managing seasonal fluctuations. Any situation where you need money quickly and have a clear repayment plan could potentially suit bridging finance.

How much can I borrow with a bridging loan?

Loan amounts vary widely depending on the security you can offer and the lender. Property-backed loans typically range from £25,000 to several million pounds, with most lenders offering up to 60-75% of the assetʼs value.

Do I need perfect credit to get approved?

Not necessarily as bridging lenders focus more heavily on the security youʼre offering and the credibility of your exit strategy. If you have strong collateral and a solid repayment plan backed by documentation, less-than-perfect credit might not prevent approval, although it could affect the rate youʼre offered.

Apart from the interest rate, are there any other fees?

Expect arrangement fees (typically 1-2% of the loan amount), valuation fees for property or asset appraisals, legal fees for the lenderʼs solicitor, and potentially early repayment fees. These can add several thousand pounds to the total cost, so factor them into your calculations before deciding if bridging finance makes financial sense.

Can I repay a bridging loan early?

Many bridging loans allow early repayment, though some charge exit fees for paying off early. Always check the terms before signing as some lenders charge interest for a minimum period regardless of when you repay, while others let you pay off early without penalty.

Is bridging finance suitable for ongoing cash flow problems?

Generally, no. Bridging loans work best for specific, short-term gaps where you know when moneyʼs coming in. If your business has ongoing cash flow issues, youʼre better off looking at longer-term solutions like business loans, invoice financing, or addressing the underlying problems affecting your working capital.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

Itʼs important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicantsʼ circumstances and creditworthiness. Funding Options will receive a commission or finderʼs fee for effecting such finance introductions.