Best Alternatives to Bridging Loans Revealed

Looking for alternatives to bridging loans? Whether you're a small or medium-sized business owner, property developer or sole trader, there are numerous options available to meet your financing needs.

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 alternatives that may provide you with the flexibility and affordability you're looking for.

What are some alternatives to bridging loans?

Here are 11 of the best alternatives available:

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. 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.

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, 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

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.

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.

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.

Personal loans can be either unsecured or secured loans. 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.

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 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.

Crowd Funding

Crowdfunding entails sourcing small amounts of capital from numerous individuals to fund a new business venture. Utilizing the extensive reach of social media and specialized 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.

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.

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 utilize 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.

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

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.

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.

Examples of bridging loan alternatives being used

Startup Funding

An entrepreneur is launching a new tech startup and needs funding 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.

Property Refurbishment

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, they choose a property refurbishment loan specifically tailored to cover the renovation costs, that can be paid off once the property is sold.

Personal Savings

A small business owner decided to tap into their savings rather than opt for a bridging loan to finance a short-term project. By using personal savings, the business avoided interest payments and maintained full control over its finances, providing a simpler and more cost-effective solution.

Still considering a Bridging Loan?

If after reading this 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, "UK Bridging Loan Insights: Everything You Must Know."

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!