Bridging finance uses and benefits for the retailer

Bridging finance, even for people who are familiar with it, is not something you would typically associate with the retail sector. Where they have heard of it, people tend to relate it to property transactions.

If someone finds a property they want to buy but haven’t yet sold their own home, a bridging loan enables them to purchase the new home before selling their current property. When they have sold the original property, they pay off the bridging loan. That’s bridging finance.

But the reality is bridging finance is used extensively for business purposes, too, and the retail sector is a leading example. Below we’ll look at two examples of bridging loans we arranged for retail companies in 2015, but before we do that here’s a basic explanation of what they are and how they are used.

Bridging Finance

Bridging loans explained

A bridging loan is a short-term loan, typically of between one and 12 months, which is used to provide the borrower with a temporary cash injection — something to get them from Point A to Point B (hence the term ‘bridge’). ‘Bridges’ tend to start from £50,000 and go up to £50m or more.

Importantly, a bridging loan is always secured against a residential or commercial property — the ‘security’. Equally importantly, there should always be what’s called an ‘exit strategy’ in place – in other words, a way for the borrower to pay off the bridging loan.

Bridging loans are generally arranged in rapid timescales and are normally only required for a short period. Their headline interest rates are typically higher than a bank loan. But since they’re often only used for a matter of months, the real interest rate is typically less than the headline rate.

Bridging finance uses for retailers

So how are retailers using bridging loans? By way of example, below are two retail-focused bridging loans we arranged at Fast Property Finance in 2015:

  • A retail client of ours in the South West that manufactured and sold its own products wanted to stock up on some raw materials for an item that was selling very well. A loan of just over £450,000 was secured against the commercial property they owned and operated out of, and was paid back roughly five months later when they had sold the additional inventory at a significant profit.
  • A high-growth e-commerce company based in London wanted to expand its operations overseas, specifically targeting the Far East where demand for its products was beginning to outweigh domestic demand. It wanted to set up an office in Beijing and hire a team that would promote its products directly to its target youth market. The owner took out a bridging loan of £275,000 secured against three buy-to-let properties he owned in the capital. He will pay off the bridging loan when he agrees to his next funding round in the Spring.

By Myles Williams, chief executive, Fast Property Finance

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