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Bridging finance. By Chris Baguley

18th Sep 2007
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A climate of unstable interest rates and increasingly cautious bank lending is leading many businesses to re-examine their funding options. Chris Baguley, managing director of Bridging Finance Limited, explains what's happening and why there has never been a better time for accountants to recommend short-term finance to their clients.

Over the past year, an increasing number of businesses have been taking a long hard look at their banking facilities. The trend has being been driven by three key factors:

  • More restrictive banking criteria, which many believe is inhibiting their growth.
  • Instability and fluctuating interest rates.
  • Greater competition in the marketplace, partly driven by the arrival of more entrepreneurial foreign banks.

Although rising interest rates over the last few months have moved many business owners to re-examine their funding structure, the cost of long term borrowing is actually going down.

As a result, many are seeking to make an early escape from existing facilities that are no longer competitive. Banking arrangements that looked attractive a year or two ago may simply look too expensive now and need to be replaced.

Business owners have the simple choice of negotiating lower priced contacts with their current funder or taking their business elsewhere.

Clearly, keener competition amongst providers is great news for businesses but it still takes time and effort to shop around, negotiate favourable new terms and make the change.

This is why increasing numbers of accountants are advising their clients to use short term loans - more generally known as bridging finance - to give them breathing space in which to restructure or renegotiate their borrowings.

Bridging finance hasn't always had a good reputation - it used to be viewed as unclear and expensive, mainly because of the poor practices of some operators.

Fortunately, those days are long gone and my company, for example, has made rapid strides in repairing the sector's tarnished image by introducing simpler, more transparent and consistent products. Indeed, most of our business referrals come from well-known accountants who have their reputations for caution and financial prudence to protect!

Although most business owners will be familiar with the one-off use of bridging finance, increasingly they are using our facilities to provide an on-going line of credit. It gives them the flexibility to exploit unforeseen opportunities that arise, virtually immediately. And everyone knows that being in a position to act quickly can often help swing a deal or snatch it from the clutches of other interested parties.

The major banks do a good job of providing day-to-day business banking facilities and have a solid range of commercial mortgage products but entrepreneurial business people generally need a quicker, more intuitive approach to funding. Niche lenders like us come into our own when speed and a grasp of the bigger picture are essential.

Acting quickly and decisively when opportunities present themselves is a key factor in the business world. In a fast-moving market, smart business owners simply can't wait weeks for their banks and institutional funders to wade through the legalities before coming up with the resources they need.

Securing funds quickly can be the deciding factor in all sorts of deals. Even after completing the formalities, waiting a further five or six days for the funds to transfer is sometimes not an option, particularly in international transactions. It is possible to reach agreement in principle during an exploratory telephone call, make a decision within hours and often complete within 24 to 48 hours of the original enquiry.

The use of bridging finance has been one of the biggest trends of 2007. The market is now worth around £2 billion a year. The outlook for gross advances is expected to grow from £2.5 billion in 2005 to £5.6 billion by 2010.

As a measure of how far the bridging finance market has developed in recent months, our business had a loan book of £1 million just fifteen months ago. It will top £50m by the end of this year. This growth is largely due to recommendations from firms of accountants and other professional advisers.

Bridging finance allows your clients much-needed breathing space to review their existing banking facilities and seek out better long term relationships elsewhere. It also provides the flexibility to take up short term opportunities with speed and minimum fuss.

These days, in its clear and transparent guise, it is becoming a popular tool with business owners wanting to take advantage of business opportunities. If any of your clients feel they need to move quickly, why not take a close, fresh look at what it has to offer.

Things to consider before recommending bridging finance to your client

1. Consider all options

All options should be considered in order to find the best funding solution. You should not dismiss any funding, especially short-term finance, which can be put in place quickly and often keep a deal going, while longer term funding is secured.

2. Pick the right lender

There are some fantastic lenders in the market, but don't always go for the well-known market leader without shopping round first. Research other providers and examine the rates and transparency of service before making your choice. Also make sure you get recommendations from past clients as this is a really good way of gauging credibility.

3. Rates do not have to be confusing

Always look to use a lender that can provide one rate as this means that your client is completely clear about what they have to repay. There are some lenders who advertise competitive rates and then offer a different (and in many cases higher rate), at a later stage. Steer clear of lenders who do not promote clarity.

4. Think about time frames

Whether your client needs help with a property transaction, a divorce or with acquiring a business, there are always time pressures involved. Bridging finance is an efficient form of funding and allows the funding process to go through without delays. Loans can even be received within 24 hours of the first phone call.

5. Read the small print

Although most bridging lenders provide clients with a typical 3 month facility, they charge the borrower if they go over this period through penalties and renegotiating new terms. At Bridging Finance Limited, we provide a 'flexible 12 month facility' from day one, which provides clients with the comfort of knowing that if they go in excess of the average three months, they are still on the same clear terms for the remainder of the facility.

6. Do not worry about credit references

Bridging loans can be lent purely against an asset and every application is assessed on an individual basis. This means less paperwork and a hassle free process for you and your client.

7. Do not just think property

Historically bridging loans were used mainly for property acquisitions. Now they can be used by those awaiting probate, those with short term cashflow hiccups and dozens of other reasons. The bridging finance market really has changed and now provides a reliable, transparent form of finance.

8. Treating customers fairly

Ensure that when you find a lender, that they will treat your client (and you) with complete clarity and transparency so that your client knows exactly the terms of the funding, what is required and how much it will cost.

9. The right project management

As bridging loans tend to happen quickly, it's important that the lender has dedicated and specialist solicitors that have experience in dealing with this kind of finance. The lender should also have a network of valuers who are familiar with what the lender requires to evaluate the application. The lender will be at the centre of the loan application, so excellent project management skills are crucial.

10. Keeping you informed

As the administration of the funding progresses, the lender should keep you and your client fully informed at each stage of the transaction.


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