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Brokers confident for 2018

Brokers are confident about the state of business and the wider economy in 2018, two pieces of research indicate.

Bridging lender mtf found that 68% of brokers believe overall market conditions will improve in 2018, compared to 31% in the same period the year before.

Meanwhile Shawbrook Bank found that 78% of brokers are fairly or very confident about the lending environment as a whole and 69% are fairly or very confident about their business growth

Furthermore, about half (49%) are about the UK economy post Brexit.

James Anderson, head of new business at mtf, said: “After the challenges faced in 2017, it is encouraging to see that brokers’ confidence is strong as we enter the New Year.

“I’m delighted that brokers see the demand for a growth in bridging finance in 2018 and the reasons are simple.

“Bridging loans provide a real-time solution to the funding gap that has developed as high street lenders come to terms with increased regulation. We can continue to expect to see a substantial rise in the demand for bridging finance throughout the rest of the year.”

The brokers surveyed said macroeconomic uncertainty will be the main challenge for UK financial services firms in 2018, while 28% cited the impact of Brexit negotiations, mtf research shows.

Some 13% said the level of market competition would be the biggest challenge. Only 6% of brokers thought regulation would prove a challenge.

Most (84%) brokers are preparing for a further rise in bridging finance volume in 2018, after 73% of those questioned reported an actual rise in bridging loan volumes in 2017.

However Shawbrook found brokers see lending restrictions, regulatory change and valuation issues as the biggest challenges their businesses.

Some 61% of brokers surveyed believe that their portfolio landlord clients are aware of the PRA rule changes but do not understand all the changes.

They said the knock on effect of the PRA/FCA regulations was likely to be the biggest issue facing their clients in 2018.

In addition, 59% of brokers surveyed believe that their HMO landlord clients are not aware of new licensing laws that may come into effect next Spring.

Source: Mortgage Introducer

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Why small (but growing) is beautiful

2017 was a momentous year for bridging, with annual lending breaking through the £3bn figure for the first time. But before we get carried away, we need to bear in mind this is equivalent to only around one 19th of the residential mortgage market.

By its very nature, bridging is a niche lending market – although it has shown a remarkable ability to adapt and thrive, providing solutions to new market needs in recent years. For property refurbishment in particular, the options now available to developers are far more widespread and competitive.

Who in the mainstream market, would have thought a decade or so ago that bridging would have proved such a socially useful form of lending, enabling empty and neglected property to be brought back into use, and supporting entrepreneurship?

Yet here we are, and I am excited about where the future might lead us.

Gone are the days when the only awareness that people had of bridging finance was in managing the mismatch of timing in the sale and acquisition of two disparate assets.

Now, there is a growing recognition that short-term finance can bridge not just a timing gap, but other gaps as well – the risk appetite gap, for example (especially as far as big banks are concerned following the global financial crisis).

Occasionally, though, I hear rumblings of concern that the bridging market is growing too fast, and risks stoking problems rather than solving them. I also hear concern about the fact that too few intermediaries operate across boundaries – brokering both short term and long term borrowing solutions for their clients.

On the first point, I see little evidence of difficulty. If anything, short-term lenders are more acutely risk aware than their long term counterparts, as the impact will hit them sooner and harder if their customer cannot repay as planned.

As long as sensible due diligence is conducted and the client has a clear exit route, if the demand is there it makes sense to meet it.

As for the second point, I have a degree of sympathy. There are still only a relatively small number of brokers who engage with bridging, with few mainstream brokers considering this as an option – although this number is growing. Holistic advice, and access to the widest possible range of solutions, must always make sense from the client perspective.

One of the benefits of being part of a growing market is the increasing likelihood of forming part of the suite of options on offer. I’m sure it is only a matter of time until more brokers realise it makes sense to look at all options and this in turn will lead to the further growth of the bridging market

As we look ahead, there will be an increasingly fuzzy boundary between products, yet an increasingly clear expectation on the part of clients that their advisers will have all available options at their fingertips. It’s clear that bridging has now earned its place among those options – and that can only be a good thing.

Source: Mortgage Introducer

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A number of bridging lenders may target business sales in two to five years, claims new report

A number of bridging lenders could be looking to sell up over the next two to five years, according to a new UK bridging market study.

The report ‘A View for 2018 and Beyond’ from the Ernst & Young (“EY”) Financial Services Corporate Finance team includes the results of a survey conducted with 11 key bridging market players.

It also highlights recent trends and provides a view on market trajectory.

“One of the reasons for producing this market study is that many bridging lenders are targeting a sale of the business in the next two to five years, although currently few are up for sale,” explained Jordan Blakesley, senior manager in the EY Financial Services Corporate Finance team.

“We wanted to use our insight to create a report for the market that helped businesses shape their strategic direction.”

The survey showed that many respondents expected the number of players in the bridging market to decrease over the next few years due to competition forcing some players without unique selling propositions to exit the market, larger existing players organically growing and diversifying into other markets and smaller lenders being acquired by larger ones.

Stuart Mogg, director in the EY Financial Services Corporate Finance team, explained to B&C that while consolidation meant fewer players, they would be “highly profitable” with improved funding terms and potential for greater product innovation.

Stuart added: “There has been a good funding market for the bridging sector over the last couple of years, which has supported the growth of the larger players.

“As a result, we are starting to see a polarisation of the market and it has become clear that smaller players need to do something strategic to compete and achieve greater scale.”

Speaking to B&C, Rob Jupp, CEO of Brightstar said: “EY are seen as the most prolific deal makers in the UK speciality finance sector and any predictions that they make in this sector are generally spot on.

“Short-term lenders have attracted interest from a broad church of investors for quite a while now and I would expect to see the ‘best in class’ generating the environment that will allow for a number of significant capital events in the months and years ahead.”

The research indicated the strategic routes available for lenders within the markets that they were aiming to grow.

These included selling, merging, expanding overseas, buying a broker, exiting the market and expanding product ranges.

According to survey responses, the US market appealed to many bridging lenders if they were to consider international expansion due to there being capacity to grow quickly. The report stated that most lenders discounted Europe because of more customer-friendly legal systems and language barriers.

The study also explained numerous debt and equity funding options and how a lender would need to prepare for such a transaction.

The EY bridging market study can be viewed online.

Source: Bridging and Commercial

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Bridging market: Six predictions for 2018

The bridging market enjoyed a solid performance last year, after achieving gross annual lending of £4.7bn in Q3 2017, according to a recent study.

The West One Bridging Index report found that gross annualised lending increased from £4.3bn in June to exceed the peak of 2016’s pre-EU referendum high of £4.4bn, with the figure up 10% on the same period in 2016.

What do we expect to see from the bridging market in 2018?

Richard Tugwell, director at Together, said: “The Intermediary Mortgage Lenders Association (IMLA) described in its October white paper a ‘rebirth’ for the specialist lending market, following its impressive growth, particularly in the bridging finance sector.

“We fully expect this situation to continue throughout 2018, as high street finance providers shuffle their propositions, meaning an even greater number of borrowers will be unable to access the short-term funding they need.

“This growing demand will provide greater opportunities for specialist lenders like Together to highlight a more tailored service – relying on personal decisions, rather than a computerised approach – to deliver the best outcome for the customer.

“In 2018, we will be forging even stronger relationships with brokers so that – as rates start to move and customers’ deals come to an end – we will be able to help even more who are looking for bridging finance, but who may not fit mainstream criteria.”

Paresh Raja, CEO at Market Financial Solutions, believed that 2018 represented a significant opportunity for bridging to further establish itself as an attractive funding option.

“As clarification is obtained as to what Brexit will mean for the UK, it is foreseeable that greater confidence will return to investors.

“Subsequently, as 2018 progresses, the housing industry could once again return to more substantial patterns of growth, which may spark a rise in real estate investment [and], therefore, bridging demand.

“Apart from the South East and London areas, demand for bridging will also rise in other cities such as Manchester, Liverpool, Leeds and Birmingham, which continued to perform extremely well in 2017 and property investors will continue to tap into this sustainable growth.”

Gavin Diamond, commercial director of bridging at United Trust Bank (UTB), added: “The bridging market continues to go from strength to strength, with UTB seeing a record number of cases in 2017.

“2018 is already off to a busy start and there’s nothing to suggest there will be any let up in activity in the short-to-medium term at least.”

Jonathan Sealey, CEO at Hope Capital, believed that flexibility would be key for bridging this year and there was no room in the market for the ‘one-size-fits-all’ approach.

“Lenders need to be flexible and treat every borrower in accordance with their individual needs.

“The prospects for lenders from developers seeking finance will increase as the government moves on its plans to get the country building.

“The land that has been sitting waiting for development will have to [be] built upon, which means developers may need funding sooner than they might have initially thought.

“Short-term finance could come into its own to give developers room to move from one project to another.

“We saw an increase in applications at the end of 2017 for loans for renovation and refurbishment.

“This is a trend that I can see continuing this year as more people – especially landlords – look to improve their current position and increase the value of their existing properties.”

Narinder Khattoare, CEO at Kuflink Bridging, commented: “The bridging market is coming off a hugely successful 2017 and pipeline business going into January is the best that we at Kuflink have ever seen.

“Certainly, industry figures from a variety of sources show the continuing growth of the sector and I expect that trend to continue in 2018.

“Development and refurbishment loans will be growth areas this year and with the news in the cabinet reshuffle that housing – and by extension the property market – is now represented at cabinet level, I am confident that the chancellor’s plan to make housebuilding a priority will actually bear fruit.

“This can only lead to greater opportunities for advisers with clients associated with the building trade over the next few years.”

Allegra Penny, relationship manager at Funding 365, also expected the bridging market to continue its growth in 2018.

“I predict continued growth in investment outside of London as stamp duty continues to bite, but I would imagine this would be at a slow rate.

“Now we have moved into the second phase of Brexit, there is still much uncertainty and until we know more, this will continue to have an adverse impact on the property market.

“Finally, moving into 2018, I think we will see continued innovation and competitive offerings within the industry and at Funding 365.”

Source: Bridging and Commercial

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A look back at the short term lending market for 2017

2017 was preceded by a long spell of huge growth and this year is no different, but it hasn’t been without a few bumps in the road. The sector suffered a short period where business levels dipped following the referendum, and again after the rate rise, but quickly bounced back on both occasions demonstrating its resilience and ability to adapt.

There have been many new entrants to the market, with a particular focus on the heavy refurb and development markets; this is largely down to the extension of permitted development rights. The rise in refurbishment lending could also be indicative of an increase in desire to improve existing properties rather than move, coupled with the lowest mortgage approval rate on new homes for over a year. Another reason for growth could be that mortgage delays continue to be the leading reason for the use of short term finance.

Overall, there has been a lot of liquidity in the market with fierce competition which has driven rates down even further. The lowest available rate is currently 0.44% pm and the most competitive we’ve ever seen.

Short Term Lending product of the year

This year, Interbay, part of One Savings Bank launched in to the short term lending market. Brightstar were fortunate enough to be selected to trial their product with a headline rate of 0.44% pm. This offers non-regulated clients the ability to benefit from the UK’s most competitive short term lending rates, starting at just 5.28% PA for loans up to 55% LTV.

The product can also be used for property requiring light refurbishment.

The LTV brackets are 0.44% up to 55% LTV, 0.54% up to 65% LTV, and 0.64% up to 75% LTV.

All LTV brackets carry a 2% fee with no exit fee or ERC.

Source: Financial Reporter

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Bridging in 2018

The latest data from bridging trends certainly made for interesting reading.

Mortgage delays were cited as the most popular reason for obtaining a bridging loan in Q3 this year, while average LTVs reached 49.6% during Q3 this year.

This was up from 45.4% on the previous quarter, suggesting that investor confidence in the market is stable and on a steady upward trajectory.

The fact that the average completion time on a bridging loan application in Q3 increased by four days isn’t surprising.

The summer holiday period is typically a busy time for annual leave requests and resource levels dropped as a result.

Perhaps some lenders need to think about streaming completion processes further in order to really make the most of the opportunities in the market.

Luckily, bridging finance is built on the very foundations of flexibility and speed.

Although mortgage delays have returned as the main reason for obtaining bridging finance, refurbishment follows closely behind, highlighting how it is still a key area of demand, as more people realise the opportunity that it offers.

Since the change in planning legislation a few years ago, the purposes for a refurbishment are extensive, and bridging can be the flexible solution that enables it to happen.

We have also seen an increase in applications involving renovation and refurbishment and this trend is likely to continue in 2018.

These industry figures also illustrate how a one size fits all approach and offering is a thing of the past.

Bespoke and flexible financing is the future, particularly during times of uncertainty, so it is crucial that we as an industry are fully prepared with diverse financing options.

Market moves are continuing to present the bridging market with opportunities and we must continue to capitalise on these going forwards.

The fact that the drop which followed the referendum quickly recovered highlights the market’s resilience and reiterates how it is well placed to take advantage of any future economic fluctuations due to its adaptable nature and diverse offering.

The sector has seen a five-fold growth in lending since 2011, and the low interest rate environment means an increasing number of borrowers will turn to alternative funding options.

Well-funded players in the market, particularly principal lenders who are able to cater for complex cases and can provide quick turnarounds, will ultimately thrive.

Source: Mortgage Introducer

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Rise of 115% in numbers applying for a short-term loan to pay their mortgage of rent

THE number of people in the UK turning to short-term loans to cover their rent or mortgage has more than doubled, according to new statistics.

In the past two years the number of people applying for short-term credit who said they needed help paying for their accommodation increased by 115 per cent.

New data from FCA authorised credit broker CashLady found the total number of people applying for loans has also nearly doubled since 2015, with a 93 per cent increase in volume.

As well as the number of loan applications rising, the average loan amount requested by those struggling in the UK has increased by 45 per cent from £224 in 2015 to £325 this year. The statistics from CashLady come just weeks after the Financial Conduct Authority revealed that one in six people in the UK (17 per cent) would struggle to pay their mortgage or rent if it increased by just £50.

Earlier this month, the Bank of England’s Monetary Policy Committee announced it would increase interest rates for the first time in ten years — from 0.25 per cent to 0.5 per cent.

Figures also revealed that NHS workers still top the list of employees who most require emergency financial help.

They are followed by supermarket staff from Tesco, Asda and Sainsbury’s. Struggling members of the armed forces also make up the top five workforces requesting loans.

Managing director of CashLady, Chris Hackett, said being able to keep a roof over your head is “a basic human right.”

He added: “These figures, uncomfortable as they are, lay bare the state of the nation as people are struggling to cover their rent or mortgage payments.

“Wages for some of our most valuable members of society are just not high enough for them to manage basic living costs and they are regularly being forced to seek out short-term financial help.

“Housing expenditure is the largest monthly expense for our customers and they should be able to comfortably afford this before turning to emergency finance.

“We act as a broker for short term credit to help our customers find financial assistance from FCA authorised credit providers instead of seeking out illegal or potentially dangerous alternatives.”

The CashLady figures have been released after Chancellor Philip Hammond was accused of leaving ‘ordinary’ Brits out of yesterday’s budget, by failing to mention a wage boost for public sector workers, despite claiming to “support our key public services.”

Source: The National

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Short-term lending industry shows increased consumer confidence

The highly controversial high-cost short-term (HCST) credit industry has seen a huge increase in consumer confidence in the UK.

The high cost loans, otherwise known as payday loans used for emergency purposes, have always been subject to huge criticism from the press and MPs. In particular, payday giant Wonga was once accused of “usury” for facilitating loans with an APR of over 6,000 per cent. However, following new regulation, the industry has seen a dramatic change in transparency and consumer confidence.

The introduction of FCA

The Financial Conduct Authority took over as the main regulator for consumer credit in 2014, officially launching in January 2015.

One of its first changes was to ensure that all lenders and brokers trading in the payday sector were fully authorised and fit to carry out regulated activity. Companies were granted “interim permission” whilst applications were being processed, with most companies taking around 12 months to become fully authorised – such as QuickQuid, Peachy and Uncle Buck.

The rigorous process managed to remove more than half of the companies offering high-cost short-term loans from the industry – allowing only the most compliant to survive.

The role of authorisation has significantly de-powered the role of brokers in the industry, who until this point had been regularly capturing data and re-selling it multiple times for profit. Prior to 2015, it was unclear for many consumers which website was a lender or broker, hence many applicants would fall victim to their details being sent to hundreds of companies, bombarded by text messages and phone calls and in several cases, upfront fees being taken out as a cover for “admin fees”.

This led to the payday industry receiving over 10,000 complaints between Jan and March 2014. But since the introduction of FCA regulation, the process of brokers selling data has diminished significantly.

The price cap

In addition, the FCA the introduced a price cap for the payday industry to limit the amount that lenders could charge. This capped daily interest at 0.8 per cent, equal to £24 per £100 borrowing and meaning that customers would never repay double the amount they asked to borrow. This resulted in several more companies leaving the industry, deeming that the margins were no longer “commercially viable”. A price cap on default charges was also established, limited to a one-off fee of £15.

One function of the price cap was to encourage new competitors in the market to compete over other factors such as even lower rates, flexible product offerings and customer service.


All lenders were required by the new FCA regulation to carry out full credit and affordability checks prior to funding a loan. This indicates that lenders have to prove that a borrower can afford to repay without falling into financial difficulty. The role of underwriting was somewhat loose previous to FCA – with several loans granted by lenders in an attempt to increase profits by extending loans and triggering late fees. In fact, several large lenders were fined millions of pounds for failing to demonstrate adequate checks. Wonga was fined over £200m in October 2014 and QuickQuid fined £1.4m in November 2015.

However, with strict checks now a requirement, there is an emphasis on only giving loans to those that can afford it. The downside is that less and less people will be approved for loans as lenders become more restrictive. Wonga notoriously cut its number of approved loans from one million in 2014 to 550,000 in 2015.

Transparency through comparison websites

In an attempt to increase transparency of prices, all lenders are now required by the FCA to include a link to a comparison website clearly on the website homepage. This should allow the user to see clear comparison tables and compare the rates of that lender against other competitors. Leading comparison sites in this industry include, All The Lenders and Quiddi Compare.

How consumer confidence has increased

The role of regulation has significantly increased consumer confidence for those looking for a high cost loan.

As we approach the three-year anniversary of the FCA’s regulation in the industry, we see that applicants have a much better idea of what lenders charge, without fear of very high costs or their personal details being sent to numerous companies and fees being taken out for no reason.

This has been emphasised by the number of people searching for payday related products on Google and the topic being mentioned considerably less in the press.

In addition, a recent review by the FCA of its price cap indicated that it was “happy” with how it was being conducted and how there were overall significantly less complaints in the industry. The price cap and regulation for the high-cost short-term credit industry will not be reviewed again until 2020.

Source: Real Business

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Chain-break: How you can STILL buy if your sale falls through

PICTURE the scene. You’re moving home, and you’re in a chain. That is to say, you’re selling to someone who’s selling to someone else. The deal is days away from exchange, and then you get the phone call. The estate agent telling you that your buyer is having to withdraw from the transaction.

Your first thought is that you’re going to lose the dream home that you’re currently trying to buy.

Your second thought is the amount of money you’ve racked up so far on solicitor’s costs and surveyor’s fees that you’re about to lose.

Believe it or not, on average currently one in three chain-based transactions fall through in the UK, and although the reasons why vary, the consequences are normally always stressful and expensive.

So, if this happens to you, what are the options available if you still need to move and don’t want to miss out on the property that you’re aiming to buy?

Firstly, it may be possible to keep the property that you were going to sell, remortgage it to release enough equity to make your onward purchase, and then keep it and let it out.

This course of action makes you a landlord, albeit an accidental one.

It’s is a common way to deal with such a problem, particularly in areas where there is high demand for rental housing.

If this route appeals, you’ll need to get professional mortgage advice to ensure that the numbers stack up, and that you have the correct mortgage in place for both properties.

It’s not a cheap solution, as you also need to bear in mind that if you’re keeping your existing home and letting it out, then you’ll pay an additional 3% of Stamp Duty and Land Tax on the property that you’re buying.

You’ll also need to ensure that you understand the ramifications of the additional income tax you’ll pay on any rental income on the property you’re letting out.

However, for some people whose individual circumstances mean that they need to move quickly, this can be a reasonable solution, although one which requires significant research to ensure that you understand fully what you’re letting yourself in for and how much it’s going to cost you, both in the long term and the short term.

Another option is to take out a bridging loan.

This is typically a short-term funding option, used to ‘bridge’ the gap between when you need money to purchase a property, and when you’ll receive funds on the property that you’re selling.

A bridging loan can be a very useful solution to help facilitate a transaction that otherwise wouldn’t be able to move forward, for example if a chain falls apart.

However, there are a couple of things that are important to consider.

Bridging finance is basically a short-term loan offered at a high rate of interest, which can make it an expensive option.

Secondly, you need to be really confident that your sale is going to go through, because the money is advanced to you so that you can make your onward purchase on the basis that you’ll be paying it back in full within a very short timescale, usually a couple of weeks.

A typical bridging loan is based on 1% interest per month on the total amount that you’ve borrowed, and you’ll need to have an exit plan, in other words evidence how you’re going to repay the loan and when, in order to be considered for this particular type of finance.

The other thing to be aware of is that bridging loans aren’t regulated the same way that normal, mainstream mortgages are.

So, if this is an option you’re considering it’s really important that you receive expert, professional advice from a broker who can review a range of bridging loan products for you, to ensure that the bridging finance company are reputable and that you fully understand all the fees you may be charged and how the interest on the amount you’re borrowing is being calculated.

As Brian Murphy, Head of Lending for Mortgage Advice Bureau whose best buy mortgages for home movers have been released today explains, “Being involved in a transaction where a chain breaks down can be exceptionally stressful, but there are options available to help you progress your move.

“If you decide to let out your existing property and need to remortgage to release equity in order to help fund your onward purchase, it’s likely that you’ll need a specific Let to Buy mortgage, which is a slightly different product to a typical Buy To Let mortgage.

“If you’re going to raise bridging finance, it’s essential that you get professional advice, as you’ll need permission from your existing mortgage lender to do so.

Either way, it’s crucial that you are totally comfortable with the financial implications of whatever course of action you decide, and that you can afford all the fees and repayments and additional Stamp Duty, if it’s due, before you continue.”

A third option is to sell your existing home to an investor who specialises in buying properties quickly, in order to free up your cash so that you can proceed with your sale.

Typically, if you’re using this kind of service, you’ll be offered a price that is well below the market value for your property (or BMV as its known in the property industry) for example probably only 75% or 80% of what it’s worth, but they will facilitate a transaction quickly.

Historically, this has meant that this route has really only been used by those who are desperate as a last resort, due to the amount of equity lost as a result of such a transaction.

However, there is now a welcome alternative to the typical BMV investor model.

Nested, who are a new entrant to the market, offer to guarantee up to 97% of the market value, with the additional upside that a further amount is payable to the seller if Nested are able to sell the property at or above the agreed valuation.

If the property sells at under the value guaranteed, Nested make up the shortfall, not the seller.

Nested was launched in January 2017, and don’t class themselves as a BMV investor, rather an ‘ethical estate agent who is able to guarantee that they will sell your home’.

So far, the company has successfully sold over £400million of property, enabling their clients to sell their current home quickly in order to buy another, or assist those who have been in a failed chain to complete their purchase when they’ve lost a buyer.

The cost for using the Nested service is a fixed fee of 1.5% of the selling price of the property, which is very similar to what many normal estate agents would charge, although of course the crucial difference is that Nested guarantee to sell the property once the valuation has been agreed.

There is an additional fee of up to 1.5% if the guaranteed valuation is exceeded when Nested sell the property.

The service currently operates within the M25 and covers Greater London, however the company are rolling out nationally early in 2018.

So, if you receive that phone call from the agent telling you that your buyer has pulled out, don’t panic.

There are options available. Yes, it’s awful when life throws a curve-ball like this but, by taking appropriate professional advice and researching your options thoroughly, it’s still very possible to proceed with buying that home you’ve set your heart on.  Just take a deep breath and, as the saying goes, keep calm and carry on.

Source: Express

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How & why short-term business loans make sense for experienced entrepreneurs

Many business loans are substantial, long-term commitments that come with a mountain of paperwork to wade through and complicated lending terms that are foreboding for business owners that only need a reasonable amount of extra money for a limited period.

While long-term business lending is intended to cover expansion requirements, buying out a competitor or for another critical need, short-term business loans are suitable for businesses that have some immediate expenses or ones that are upcoming over the next few months. The typical shorter loan period is repayable over a 12-month period, although there are some that run longer than this to provide a bit more time to repay.

Which Businesses Can Access a Short-term?

In this first instance, short-term business loans are available to UK businesses registered as a limited company, operate as a sole trader, or as an incorporated partnership. For companies, they must be registered with Companies House as a UK company with its company filings being up-to-date.

Most lenders will want to see at least one year of business operations (often longer), with the most recent yearly statutory accounts filed with Companies House confirming a 12-month turnover that exceeded £100,000. While a short-term business loan is often unsecured, being a homeowner is usually a plus. The debt obligations of the business must be manageable at their current levels – preferably with a good deal of slack to afford the additional repayments of a short-term loan – and the director shouldn’t have any outstanding creditors from a previous business either.

See for a guide on the application specifics for small business owners looking for short-term funding.

How Much Can Be Borrowed?

The maximum loan amount depends on the lender’s policies and loan criteria. A business that’s only been operating a year with limited profitability will not be offered as much as a more established business with a million-pound turnover and six-figure profitability every year.

Short-term small business loans fall between the £3,000 and £150,000 range, which keeps the repayments reasonable and the total interest and closing costs affordable.

Best Uses of a Short-term Business Loan

Managing the demanding cash flow requirements of a company is tricky. There are times accountants make a mistake or omit some important upcoming expenses, which leaves an unexpected hole in the accounts that must be filled. It’s a situation that usually can be traded out of using future profits to fill in the hole where the miscalculation was made, but in the meantime, the company faces the likelihood of running below a zero balance until they can recover. To ensure they can keep trading profitably, a short-term loan is a useful, structured way to deal with the issue rather than using an overdraft facility that often seems to work like quicksand; the more you use it, the deeper you sink.

A lower than expected seasonal sales season can cause a problem with balancing the books through the worst periods of the year. With a company that is showing positive signs of sales growth the rest of the year but is suffering through their usual seasonal dry spell, a short-term facility makes sense to survive the period and use upcoming profits to pay off the loan a few months’ later.

Expanding staff or larger facilities to handle a surge in business where the cash flow drags behind the gross sales is another area where a long-term lending facility won’t make much sense, but a 12-month one certainly does. Having enough staff on-hand improves morale while the business is under strain from rapid expansion. Similarly, opening an annex or taking over the next-door office helps to manage staff numbers ahead of the rise in profitability.

When Is the Wrong Time to Take Out a Short-term Loan?

Taking out a short-term loan for a business that’s declining isn’t the smartest move. There’s no telling whether the sales decline is going to continue when it’s not due to known seasonality reasons. It is best to survey the customers (especially the ones not buying the product or service) to determine what is causing them to pass on your offer? Then fix the problem.

A company that is perennially short of working capital won’t benefit much from a short-term facility because unless the fortunes of the business improve in the short-term too, it will be ill-equipped to repay the loan in time. Taking out a new lending facility to repay the first one won’t work like it does with a credit card minimum payment because short-term loans are not necessarily paid in full all on the back-end.

There should always be sound, well-considered reasons for taking out any lending facility. Otherwise, it’s an expensive way to meander along in a business being unsure what to do with the extra cash. More money and no plan surely are a bad idea, especially for a company that will need to repay the loan, plus interest, inside of a year or less. Borrowing prudently is the best idea.

Source: BM Magazine