How Long Should You Arrange Bridging Finance For?
If you are considering selling the premises that you currently operate your business from and purchasing new premises then it would be preferable if you were able to arrange the contemporaneous sale and purchase of them. That is what normally happens but there may be occasions when this is not possible.
For instance, the prospective purchaser of your existing unit may have had a delay in arranging finance to purchase it. If you require the monies emanating from the sale to put towards the purchase of your new premises as well as the funds from a commercial mortgage and feel that you may be in danger of loosing the new premises as the vendor has another interested purchaser then you may wish to consider bridging finance if your purchaser is not in a position to do so.
One of the considerations with a commercial bridging loan is for how long you will require the funds. There is no doubt that it would be preferable to borrow the monies for as short a time as possible as the longer that you borrow money for then the more interest you will end up paying back. This is especially relevant to bridging loans as the interest rate on them tends to be higher than the likes of a commercial mortgage therefore the sooner that you can pay it back the better.
The maximum term available for bridging finance from many lenders is often up to 12 months but there are occasions when a lender may consider advancing you the funds over a longer period of time. Obviously, if you only need the borrowing for say a month then so much the better as this would involve you in a lower outlay as far as bridging loan interest is concerned.
As part of your due diligence, when considering whether a commercial bridging loan is financially viable, you will wish to work out approximately how much interest you will end up paying back over a specific period of time and whether the business can afford it. You may also wish to calculate the financial impact if the bridging finance was not liquidated within the anticipated time scale.
The answer to the question “ How long should you arrange bridging finance for?” is “As short a time as possible”!