SME’s are the catalyst for the growth of our economy but many cannot expand, and some fail, because of loan drought, the absence of loan facilities provided swiftly and simply. Not many bridging lenders have filled this void; possibly a lack of necessary skills, limits imposed on funding line eligibility or the ability to lend for longer than six or twelve months, or perhaps all three.
This includes working capital, refinance, to cover short-term cashflow peaks and troughs and property acquisition or improvement. Historically, this has been satisfied by the clearing banks but now this is easier said than done without an established, strong banking relationship. As a result, there is a big gap in the market, a great opportunity for entrepreneurial lenders and brokers to fill the space. Crowd funding helps but usually only for small sums.
The opportunity is loans between £250,000 and £5M or more for the business community against property assets for their occupation and for the property industry to finance investment, trading and development. Bridging lenders prefer mainstream assets such as retail premises, offices, industrial and warehouse units and residential developments with planning permission. Sometimes a charge on the borrower’s home completes the security package. The “odd-balls” remain unloved with very little appetite for specialised assets.
Bridging finance is just that; a short-term loan until a long-term loan is finalised. It is an opportunity for brokers to earn two fees or if they are benign one for the bridge and a reduced fee for the captive refinance. But a six or twelve-month bridge often does not satisfy the borrower’s need if it is necessary to complete a refurbishment or development and to establish the income as would be the case for serviced apartments, student accommodation, hotels and trading businesses. Consequently, the lender must be able to advance for 24 or even 36 months to avoid a costly interim refinance before the long-term loan can be drawn down.
Skills needed by lenders are quite different from residential bridging loans and combine accounting, property and legal expertise, not always available from small lenders. Not every loan is vanilla and many applications demand expert input which can only be provided by those able to credit review the business as well as the property. Asking the right questions and obtaining a comprehensive response is key to avoiding delay; further down the line, the loan officer will need to present the proposal in a business-like way to credit committee, answering all the questions without confusion.
And the next step for business bridging? It will be for more lenders to provide a revolving facility, akin to a bank overdraft, with the ability for the borrower to repay and redraw, time and time again, avoiding interest payments when funds are no longer needed but on-call without further setting-up costs the next time liquidity is required. It is more expensive than a bank overdraft but far more cost-effective than creating a new bridging loan each time funds are required.