How Business Owners Can Use Bridging Loans

Bridging loans are short-term financing options that can help business owners meet their urgent financial needs. With a bridging loan, you can access the funds you need quickly and efficiently, allowing you to take advantage of opportunities or manage unexpected expenses.

As an Australian business owner, there are several ways you can use bridging loans to your advantage. Learn more in this article.

What is a bridging loan?

Bridging loans are a form of short-term financing that can assist in filling the gap between buying a new property and selling an existing one. This type of loan provides the borrower with the funds they need to purchase a new property, with the intention of repaying the loan when the sale of their existing property is completed.

Bridging loans are typically offered by banks and other financial institutions and are secured against the borrower’s existing property or the property being purchased. The loan term is usually up to 12 months, although some lenders may offer longer terms.

Bridging loans are often used by property investors and homeowners who are upgrading to a new property and need to finance the purchase before the sale of their existing property has been finalised. They can also be used for other purposes, such as financing renovations or funding a business.

How bridging loans work

To apply for a bridging loan, you’ll need to provide information on the security property, the purchase price of the new property and your ability to repay the loan. Once your application is approved, the lender will provide the funds you need to purchase the new property.

Depending on the lender and the loan product, you may be required to make interest-only payments during the loan term, with the full loan amount due at the end of the loan term. Alternatively, some lenders may allow you to make full repayments during the loan term, which can reduce the overall cost of the loan.

Once your existing property is sold, you can use the proceeds to pay off the bridging loan.

How you can use bridging loans for business purposes

Here are some practical ways to use bridging loans for your business:

Property purchases

If you’re looking to buy a new property or expand your business, bridging loans can provide the necessary funding to make the purchase. This type of loan allows you to complete the purchase quickly, without waiting for the sale of your existing property.

Cash flow

Business owners can use bridging loans to cover short-term cash flow issues. For instance, if you’re waiting for an invoice to be paid, you can use bridging finance to bridge the gap until you receive payment.

Business expansion

When expanding your business, you can use bridging loans to get the funds needed to purchase new equipment, hire staff or expand your product line.

Mergers and acquisitions

Bridging loans can also be used to finance mergers and acquisitions. If you’re looking to acquire another business, bridging finance can help you secure the funds you need to complete the transaction.

Working capital

Bridging loans can provide working capital for your business, allowing you to cover day-to-day expenses and invest in growth opportunities.

Eligibility requirements for bridging loans in Australia

To qualify for a bridging loan, business owners need to meet certain eligibility requirements. These requirements can vary depending on the lender and the type of loan, but here are some general guidelines:

Australian business: You must have an Australian business with an ABN/ACN that is registered for GST.
Property ownership: You must own property that can be used as security for the loan, such as commercial or residential property.
Repayment ability: You must demonstrate that you have the ability to repay the loan within the specified loan term, typically up to 12 months.
Loan amount: Most lenders have a minimum and maximum loan amount, with the maximum typically being up to 70%–80% of the value of the security property.

The pros of using a bridging loan

Some key advantages of using a bridging loan for your business are:

Quick access to funds: Bridging loans can be approved and funded within days, providing fast access to the funds you need.
Flexibility: Bridging loans can be used for a variety of purposes, from property purchases to working capital.
No monthly repayments: Some bridging loans only require repayment at the end of the loan term, which can help with cash flow in the short term.
No restriction on use: Unlike some other forms of finance, bridging loans have no restrictions on how the funds can be used.

Key takeaway

If you need access to funds you can use to grow your business, bridging loans can be a valuable tool. However, before applying for a bridging loan, it’s a good idea to seek professional advice and carefully consider the potential costs and risks. Additionally, consider choosing a lender who understands your needs and can offer competitive rates and terms.

If you need quick and flexible financing for your business, Mango Mortgages offers bridging loans with funding typically available within 3–5 days, loan terms from 2 to 24 months, and no credit check or income assessment required. Our loans are backed by real estate and available Australia-wide. Whether you need a caveat, second or first mortgage, we can help you bridge the gap and achieve your financial goals. Apply online here.

Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management