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A limited company wouldn’t use a bridging loan as a workaround or shortcut. The benefit is having access to a short-term funding solution for solving urgent issues where traditional finance won’t be ready in time.
Bridging allows a limited company to unlock opportunities. Conversely, when used badly, they can be a costly mistake. The difference comes down to understanding their proper uses.
Understanding the benefit to a limited company
A bridging loan for a limited company is an asset-based loan product that has a repayment period of 1-12 months. The period may vary or even extend according to the requirement.
The purpose of the loan is to bridge the immediate need for funds and a future exit event. The most common exits are:
- The property being sold on
- A longer-term product being used as a refinance
- Refurbishment leading to capital being released
- Influx of funds from outside investors
These finance agreements are secured, fast-paced, and dynamic. However, they need to be planned and well considered.
Use cases for a limited company
Common real-world uses of bridging in a limited company would be:
Property purchase
Limited companies can use fast bridging finance to buy property where:
- Speed is paramount
- Property is not suitable for immediate mortgaging
- Works are planned prior to refinancing being done
Auction purchase
Auction timelines are brutal and strict. A bridging loan can make the difference between completion and collapse.
Time-critical situations
If the money the company holds is temporarily tied up elsewhere and timing is non-negotiable, bridging finance can help to cover that gap.
If there is no clear exit to fall back on, this type of borrowing is not appropriate and likely not to be agreed by a lender.
How much can you borrow?
Borrowing starts at £25,000. A maximum loan amount would be determined by:
- Property value
- Security on offer
- Exit strength and viability
- Overall risk attached to the borrowing
The focus is on the asset and exit – trading histories or affordability models are of lesser importance here.
Calculating bridging finance for limited companies
A bridging loan calculator should be used from the off, not to confirm affordability, but to understand the full cost of the loan.
A proper calculation will give insight to:
- Monthly interest
- Loan term
- Associated fees on top
If numbers don’t work on paper, they won’t work in the real-world.
Speed: What to expect
Urgency is the key benefit to bridging because:
- Credit-backed acceptances can be issued in 24 hours
- Funding is possible within 48 hours, subject to valuation and legal satisfaction
Speed depends on preparation. Being suitably prepared makes a fast completion achievable.
What matters most?
- Realistic terms and expectation
- Being open to repayment or extension options
- Working with a lender experienced with limited company financing
- No unnecessary complexity in your ask
Fast finance only works if it completes cleanly.
What we have learned
Used properly a bridging loan can be a useful tool for a limited company. When intended for short-term use, backed by clear exits, and for borrowers who understand numbers, these can help a company navigate tricky waters – provided the product is used with proper intent and correct discipline.