Top 12 Alternatives to Bridging Loans Revealed

Are you searching for the best alternatives to bridging loans? Whether you're a small or medium-sized business owner, property developer, or sole trader, we've got you covered.

According to recent statistics, the demand for bridging loans has surged, driven by small and medium-sized businesses seeking quick access to capital for various purposes.

With the usage of bridging loans on the rise, it naturally opens up the discussion around what other lending products and options are available, and are there any others that could be more suited to your needs?

From commercial mortgages to peer-to-peer lending, invoice financing, and more, this article explores a range of bridging loan alternatives that can provide you with the flexibility and affordability you're looking for.

What Are Some Bridge Loan Alternatives?

Here are some of the best alternatives to bridging loans:

1. Peer-to-peer lending

Peer-to-peer (P2P) lending has added a new solution to the borrowing and lending landscape by enabling individuals to lend money without the need for traditional intermediaries.

P2P lending platforms operate by connecting borrowers with investors to fund their loans, representing a form of peer-to-peer investments. Borrowers create profiles detailing their financial needs, and investors select loans based on risk and return preferences.

Transactions are facilitated through the online platform, streamlining the lending process for both parties.

Initially created to serve underserved borrowers, their use has expanded to cover needs akin to bridging loans.

For business owners seeking quick capital access without wanting it to go through traditional banks or building societies, this could be the perfect solution.

2. Commercial mortgages

Commercial mortgages are loans secured by commercial properties like offices or warehouses. They provide financing for various business needs in real estate, such as purchasing properties for business operations or investment purposes.

These loans typically have longer repayment terms and lower interest rates compared to other forms of commercial financing, making them an attractive option for businesses seeking stable, long-term financing solutions.

They offer flexibility in terms of property ownership and usage, allowing businesses to acquire, expand, or refinance properties while maintaining financial stability.

Unlike short-term bridging loans, which often carry higher interest rates and fees, commercial mortgages provide stability and predictability with longer terms and lower rates.

This makes them a cost-effective alternative for businesses looking to acquire or refinance commercial properties without the pressure of immediate repayment associated with bridging loans

3. Family or Friend's Loan

Borrowing from family or friends can be an attractive alternative to a bridging loan, particularly for those seeking short-term financing without the associated high costs and formalities of traditional methods.

Unlike bridging loans, which often come with higher interest rates and more stringent repayment terms, borrowing from family or friends may offer more flexibility in repayment structures and interest rates - if any.

As far as alternatives to bridging loans go, this is undoubtedly one of the best.

4. Personal savings

Another option offering similar benefits to a family or friends loan is tapping into personal savings.

With full control over your finances, using savings eliminates the need for borrowing whilst avoiding interest payments.

While it may involve depleting reserves, using savings can be a worthy alternative to bridging loans, offering a quick solution that is both simpler and more cost-effective.

5. Personal Loan

A personal loan is a great option to consider since it can be quite flexible. Their only real limitation is they will usually only go up to around £30,000, however for a lot of bridging loan cases, this will be sufficient.

A Personal loan can be either an unsecured loan or a secured loan. Unsecured loans do not require collateral but often come with higher interest rates due to the increased risk for lenders.

On the other hand, secured loans are backed by collateral, such as a car or property, which can result in lower interest rates but also come with the risk of asset seizure if payments are not made.

Some lenders may require a personal guarantee for unsecured loans, especially for larger amounts or higher-risk borrowers.

A personal guarantee means that the borrower is personally liable for loan repayment, which can add a layer of risk but may improve the chances of loan approval.

6. Business Loan

A business loan is a financial arrangement where lenders provide funds to companies rather than individuals. These loans are repaid over time, typically through monthly instalments, until the borrowed amount is fully repaid.

Compared to personal loans, business loans offer access to larger sums of money, reflecting the financial needs of organisations rather than individuals.

Business loans come in various types, including secured and unsecured business loans, short-term and long-term loans, cash advances, bad credit loans, startup loans, and small business loans. Each type caters to different business needs and financial situations.

These characteristics make them very versatile business finance options, especially when compared to bridging loans.

7. Crowd Funding

Crowdfunding entails sourcing small amounts of capital from numerous individuals to fund a new business venture.

Utilising the extensive reach of social media and specialised crowdfunding platforms like Kickstarter or Indiegogo, entrepreneurs can present their ideas to a broad audience, attracting potential investors who can contribute as little as £10 to the project.

These platforms facilitate the whole process, of generating revenue through a percentage of funds raised. However, crowdfunding is subject to regulations to protect investors from undue risk.

For businesses with a large existing following or proven product, this can offer a great alternative especially since there is no need for collateral or high-interest repayments.

However, crowdfunding may not be suitable for every scenario, and success often depends on the uniqueness and appeal of the project, as well as effective marketing and outreach efforts.

8. Development Finance

Development finance provides a tailored funding solution for residential or commercial development projects, covering purchase costs and construction expenses. It supports various project types, from ground-up builds to property conversions or refurbishments.

This specialised financing offers flexibility and versatility, accommodating single-unit developments as well as large multi-unit schemes.

In summary, development finance stands out as a viable alternative to bridging loans, offering tailored solutions for various development projects. Its secured nature against the projected value of the completed project provides developers with essential capital, ensuring flexibility in managing cash flow and project timelines.

This, combined with its alignment with specific project needs and objectives, makes it an attractive choice for developers seeking funding.

9. Property Refurbishment Loan

Property refurbishment loans offer financing specifically tailored to cover the costs associated with renovating or refurbishing a property.

Unlike traditional loans, which may not consider the unique needs of property refurbishment projects, these loans provide funds specifically earmarked for renovations.

The process typically involves assessing the current condition of the property, estimating renovation costs, and securing financing based on the projected value of the refurbished property.

For example, a developer aiming to renovate a run-down property for resale could utilise a refurbishment loan to cover the costs of repairs and upgrades. These loans are typically structured to align with the renovation timeline, offering repayment flexibility.

By securing financing against the projected value of the refurbished property, developers can access the capital they need while maximizing the property's potential for value appreciation.

10. Second-charge mortgages

A second-charge mortgage is a type of secured loan that leverages the equity in your existing property as collateral.

It allows you to access funds without remortgaging your primary mortgage, making it an attractive option for various purposes like home renovations or purchases. Each mortgage has its own repayment terms, and you make monthly payments to both lenders.

Unlike bridging loans, second-charge mortgages tend to provide longer repayment terms, making them a viable option for those looking to purchase additional property without immediate repayment pressure.

For those with existing property and hefty early repayment charges on their primary mortgage, they can offer a more cost-effective solution than refinancing or bridging loans.

11. Cash-out Remortgaging

Cash-out remortgaging is another avenue worth exploring when seeking financing solutions. This method involves refinancing your existing mortgage, often with a new lender, to release equity tied up in your property.

The process typically involves replacing your current mortgage with a larger one, allowing you to receive a lump sum of cash based on the increased value of your property since the original mortgage was taken out.

With the possibility of securing a better interest rate, cash-out remortgaging offers the opportunity to access funds at a more affordable cost, making it an attractive option for those seeking long-term financing solutions with manageable repayment terms.

12. Second-charge Bridging Loan

Although still a type of bridging loan, second-charge bridging loans offer a distinct set of benefits. These loans are secured against a property that already has an existing mortgage, allowing borrowers to access additional funds without refinancing the primary mortgage.

This can be particularly useful for homeowners or investors who need quick capital but wish to avoid the higher costs or complexities of other financing options.

They can provide a flexible and often faster way to secure funds, making them an attractive alternative for urgent financial needs, such as property renovations or business expansions.

Whilst these might not be the best option for every financial situation, they are most definitely some of the best bridging loan alternatives.

Examples of Bridging Loan Alternatives Being Used

1. Initial funding for a start-up using crowdfunding 

An entrepreneur is launching a new tech startup and needs short-term finance to cover expenses such as product development, marketing, and hiring.

Instead of resorting to a bridging loan, which may not be suitable for longer-term financing, they explore alternative options like crowdfunding or venture capital investment.

By utilising crowdfunding platforms such as Kickstarter or Indiegogo, they can raise the necessary funds from a broad audience, often without the need for collateral.

Alternatively, venture capital investment provides substantial capital and mentorship, helping the startup scale quickly.

2. Property refurbishment financing using a property refurbishment loan

A property developer decides to renovate a residential property to sell it for a higher price.

Rather than opting for a bridging loan, which might have higher interest rates and short repayment terms, they choose a property refurbishment loan specifically tailored to cover renovation costs.

This type of loan aligns with the project timeline and can be repaid once the property is sold, making it a more suitable and cost-effective solution for financing the refurbishment.

3. Small-business expenses covered by using personal savings (via investment)

A small business owner needs short-term financing for a project.

Against taking a bridging loan, due to higher interest rates, they seek alternatives to bridging loans, leading them to invest their personal savings.

By using personal savings, the business avoids interest payments and retains full control over its finances.

This approach provides a simpler and more cost-effective solution, eliminating the need for borrowing and the associated costs.

4. Commercial mortgage for business expansion

A growing business seeks to purchase a new office space to accommodate its expanding team.

Instead of using a bridging loan, which may come with higher costs and short repayment terms, they opt for a commercial mortgage.

This loan type offers lower interest rates and longer repayment periods, providing the business with stable, long-term financing.

By securing a commercial mortgage, the business can invest in its growth without the immediate repayment pressure associated with bridging loans.

5. Development finance for a property project

A property developer plans to undertake a large-scale residential development project.

They opt for an alternative to a bridging loan, development finance, which covers both the purchase of the land and the construction costs.

This specialised financing aligns with the project's timeline and milestones, offering flexible repayment terms based on the project's completion.

Development finance provides the necessary capital to complete the project efficiently, making it an ideal alternative for extensive property developments.

Things to consider when talking out alternatives to bridging loans

When considering alternatives to bridge loans, several factors should be taken into account to ensure the best financial decision is made:

• Interest Rates: Compare the interest rates of different financing options. Lower rates can significantly reduce the overall cost of borrowing. 
  
  
• Repayment Terms: Evaluate the repayment terms and ensure they align with your financial situation and cash flow.
  
  
• Approval Time: Consider the time it takes for approval and disbursement. Some alternatives may offer quicker access to funds than others.
  
  
• Fees and Charges: Be aware of any additional fees or charges associated with the loan, such as arrangement fees, early repayment charges, or legal fees.
  
  
• Flexibility: Assess the flexibility of the loan terms. Some options may offer more adaptable repayment schedules or the ability to borrow additional funds if needed.
  
  
• Credit Score Impact: Understand how each alternative might affect your credit score. Some options may have a more significant impact than others.
  
  
• Collateral Requirements: Determine whether collateral is required and if you have suitable assets to secure the loan.
  
  
• Purpose of the Loan: Ensure the alternative you choose is suitable for your specific needs, whether it's for property refurbishment, business expansion, or other purposes.
  
  
• Lender Reputation: Research the reputation and reliability of the lender. Opt for lenders with positive reviews and a track record of good customer service.
  
  
• Legal and Regulatory Considerations: Ensure that the loan complies with all relevant legal and regulatory requirements to avoid any potential issues.
  
  

Still considering a Bridging Loan?

If after reading this you realise there aren't alternatives to a bridging loan that suit your needs and you're still set on taking out a bridging loan, then don't worry.

Bridging loans still provides a great method of short-term financing that can be a small but crucial part of a long-term plan.

To find out more about bridging loans, take a look at our in-depth guide.

Alternatively, if you want to dive straight into exploring bridging loan options, you're already in the right place.

Our experienced team understands the challenges faced by people looking for the most time and cost-effective solutions, and we're here to help.

With our cutting-edge Fintech platform, we ensure seamless access to tailored finance solutions that suit your needs.

With access to lending products you won't find elsewhere, we'll identify the best deal for you and keep things moving until the funds are where they need to be. 

Contact us now and we will arrange a call to discuss your financial needs along with your next best step forward!

FAQ

What are the interest rates for bridging loans?

Unfortunately, as a consequence of their versatility and practicality for the borrower, bridge loan interest rates tend to be quite high, varying largely on various factors. 

Typically the rates range from 0.4% to 2% per month.

Using a bridging loan calculator you can estimate how much these rates could cost you amongst other fees. 

How do I determine the best alternative for my financial needs

Determining the best alternative to bridging loans involves a few key steps, including evaluating the associated fees.

First, assess your specific requirements such as the amount needed, the repayment period, and the purpose of the funds.

Then, compare the features of each alternative in terms of interest rates, flexibility, repayment terms, and accessibility.

Potential risks or downsides of using alternatives

The potential risks or downsides of using an alternative to a bridging loan vary depending on the chosen option.

For example, peer-to-peer lending might involve higher interest rates or less security compared to traditional loans.

Borrowing from family or friends could strain personal relationships if repayment issues arise.

Each option has its own set of risks, such as higher costs, stringent eligibility criteria, or impact on personal credit, which should be carefully considered before making a decision.

Industry-specific benefits

Certain industries or business types might benefit more from specific alternatives.

For instance, property developers might find development finance or property refurbishment loans more beneficial due to their tailored nature.

Tech startups and creative ventures might prefer crowdfunding due to its potential to attract investment from a broad audience.

Understanding your industry's unique financial needs can help you choose the most suitable option.

Impact of market conditions

Market conditions significantly affect the viability and availability of these financing alternatives.

During economic downturns, traditional lenders might tighten credit, making peer-to-peer lending or personal loans more attractive despite possibly higher costs.

Conversely, in a stable or growing economy, commercial mortgages or business loans might offer better terms and accessibility.

Staying informed about current market trends can help you make more strategic financing decisions.