Why Bridging Loans Can be Used to Cover Short-Term Financial Gaps

Recently updated on January 11th, 2023 at 11:15 am

Do you have difficulty covering a short-term financial gap? Short-term cash flow challenges can be quite stressful. Particularly if you own your own business, ‘clunky’ cash flow can disrupt operations and impact your profitability. 

The good thing is, there are options available to help address cash flow gaps, including obtaining a bridging loan.

What is short-term bridging finance?

A bridging loan is commonly used by business owners to help cover a short-term financial gap. It is a type of loan that can be used as a temporary measure (usually for a few months). In addition, personal borrowers often utilise a bridging loan to ‘bridge the gap’ between the sale of their current home and the purchase of the next property.

For example, if you are waiting for the sale of a property to go through, you may take out a bridging loan to cover the costs until you finalise the sale. Other common business uses include advance purchasing of bulk stock, upgrading equipment, or installing new IT.

There are two general types of bridging loans available:

Open bridging loans

An open bridging loan does not have a set repayment date because it gives you the flexibility to repay the loan when it suits you This type of bridging finance is typically used for refurbishments or renovations where the borrower is unsure how long the project will take to complete. An open bridge loan is useful for individuals who are looking to sell their existing property but haven’t found a buyer yet.

Closed bridging loans

A closed bridging loan has a set repayment date from the outset. This type of bridging finance is typically used for property purchases where the borrower has a definite time frame in mind. It is useful for people who have already finalised the sale conditions of their present home and know when their contract for sale will close.

Where can you use bridging finance in Australia?

A short-term bridging loan in Australia can be used for a wide range of purposes, including:

• Buying a property at auction
• Refinancing
• Renovation/ home improvement
• Investment
• Completing a property purchase
• Paying tax debts

Should you get a bridging loan?

It’s always wise to speak with a finance broker and accountant before committing to any type of finance to make sure you’re getting the most suitable loan for your needs.

Bridging finance can be a good option if you have a short-term financial need for personal or business use. The loan facility is popular because it covers such a broad spectrum of purposes.

Interest capitalisation

Many borrowers seek to select ‘interest capitalisation’ for a bridging loan (which usually means you pay the interest at the end of the loan versus month-by-month). This option is well-received by borrowers who seeking some ‘financial breathing room’ – particularly in between the sale of their current home and the purchase of the new property.

Payment for the new property

As mentioned above, if you’re purchasing a new property before selling your current one, a bridging loan could help.

When should you get a bridging loan?

As stated above, we suggest speaking with a finance broker and accountant before committing to any type of finance to make sure you’re getting the most suitable loan for your needs.

You can get a bridging loan for two reasons:

How quick can you get a bridging loan?

The time it takes to get a bridging loan approved and funded can vary depending on the lender. Private lenders, non-bank lenders and specialist lenders are renowned to process loans quickly (within days) versus traditional lenders taking weeks (or months).

A secured bridging loan is quick to process, and requires minimal paperwork, as it’s secured by an asset (usually your home), which reduces the risk for the lender. 

At Mango Mortgages, we make our bridging loan application process fast and simple. We require minimal documentation, and funding becomes available within days from application. You can apply online here.

Key takeaway

A bridging loan is a type of short-term financing that can be used when there is a short-term financial gap. This loan type is ideal if you need quick access to cash, and it can be used for different purposes.

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