When running a business, it should be expected that things won’t go smoothly at all times. For instance, there may be instances when cash flow issues arise due to delays of varying reasons.
Since your suppliers and employees expect you to find a solution to such situations, taking on a bridging loan may be the answer. Get to know more about bridging loans and weigh their pros and cons for your business’s financial situation.
What are bridging loans
Bridging loans are typically loans used to ‘bridge’ a borrower’s need for capital (procured from the sale of their previous property, which can take time to arrive) so that they can secure their desired new location ahead of the competition.
Bridging loans for businesses work in a similar manner, in which the loan borrowed serves to bridge the cash flow gap caused by the delayed arrival of the expected funds. Since such gaps can hinder business flow or disrupt operations, taking on such loans allows for the fulfilment of pressing expenses and, ultimately, securing the continuation of the business.
Characteristics of bridging loans
As with every other loan scheme, bridging loans come with their own set of benefits and considerations to keep in mind for a successful application. Fully understanding the terms of these loans and their effect on the best interests of your business will help you make a better decision.
So, before we proceed with discussing the considerations involved – below are a few advantages one can enjoyed after getting a bridging loan.
1. Swift access to requested funds
When your business is on the line, time is of the utmost essence. Reliable moneylenders in Singapore know this, so they generally release your requested funds in less than a week. This quickness lets you resume your normal operations and minimise losses from the downtime.
2. Short loan tenures
Bridging loans generally have a loan tenure of a year at most, with a few being shorter or longer than usual, depending on the terms agreed upon.
Shorter terms in bridging loans mean that they can be paid off sooner than later, granting you peace of mind once they’re cleared and allowing you to regain full focus on your business’s growth.
3. Flexible payment options
Bridging loan instalments aren’t limited to a monthly basis. You can also opt for weekly or bi-weekly payments if you wish to clear it as soon as possible, a goal that’s easier to achieve with the addition of the option to pay it over a shorter period.
On top of that, you’re also allowed to choose whether you’d prefer to pay off your loan either before or after you’ve secured your financing.
1. Involves a lot more risk
Given that the repayment of bridging loans all depends on the reception of your expected financing, there’s a high risk of defaulting in the event that it falls through. As such, collateral is generally required when applying for such loans.
2. More difficult to get approval
As mentioned beforehand, the higher risk involved begets stricter eligibility for approval. Some of the common requirements are:
- Minimum of 10 months of business operations
- The business’s structure type must be a Private Limited Company, and it must be registered with the ACRA
- An annual revenue amounting to at least $100,000
- Company director must be of Singaporean origin or a foreigner living in the country
Bridging loans provide an excellent solution for businesses that have experienced delays in securing their financing but need to receive it as soon as possible. Private institutions, such as licensed money lenders in Singapore, typically offer such loans and are often the better choice due to their more amenable terms.