Over the last decade, we’ve seen the emergence of financial developments that operate outside of a regulated bank or through capital markets, which have complicated how we view finance solutions.
Traditional lenders can often be slow when it comes to approving loans, whereas new alternative lenders, like Acuity, can use these developments to source and provide loans without the need for a traditional financial institution. This helps speed up the process and helping borrowers save on fees.
But what are some common methods of alternative lending and how do they work? Read on to find out!
Getting a loan approved through traditional methods can be a slow and arduous process. There are often many hoops to jump through to secure the money a business needs, including the demonstration of a proven cashflow, an analysis of your credit score, and more.
This will be the case no matter what kind of loan you are looking for, from commercial developer loans to landlord financing and more. And unfortunately, it’s quite often that the answer is “no”.
Consequently, alternative finance methods are increasing in popularity among business owners, with some of the most common options being bridging finance, development finance, and invoice finance.
Bridging finance is a method of funding that allows businesses to “bridge” the gap between financial plans, so they can make a purchase or investment while other assets are being freed up to secure a long-term financial plan.
This alternative lending method is typically used to cover property purchases or refurbishments, expand workspaces or offerings, and facilitate business growth through investments. Bridging finance options are often a good option to facilitate necessary purchases or investments to contribute towards your capital raising efforts.
They are often paid off over a shorter amount of time than traditional financing methods too, making them an effective way to obtain an immediate cash injection.
As a flexible finance option, they come with terms of up to 12 months and permit businesses to borrow larger amounts, typically between £100,000 and £1 million. Paying only the interest for the term of the loan enables the business to complete their plans and then exit onto either a longer-term funding solution, or to repay the loan.
However, the short-term nature of a bridging loan makes them unsuitable for large-scale development projects that will be completed over a longer period.
The longer-term solution to bridging finance is property development finance, also known as property investment finance, which is specifically used for the development of new or refurbishment of existing properties. This type of financing can be used to fund both residential and commercial properties when adding to a property portfolio.
The value of a development finance loan is determined by the predicted market value of the completed project and can often be funded with a term of 3-24 months.
However, due to their long-term nature, they are only available to Ltd, LLP, or SPV companies who are either developers themselves or using experienced builders.
Are you interested in utilising alternative lending options to expand your business? Have questions around what property development finance is? Acuity Finance provide several alternative funding solutions to support borrowers and introducers across the UK.