Paul Aitken — CEO at borro
One of the consequences of the economic downturn has been the withdrawal of traditional bank funding. For business owners this had a significant impact, on cash flow and caused more liquidity issues. However, short-term finance has been able to provide vital help for SME’s and entrepreneurs. The reasons for its successful integration into the mainstream revolve around a variety of plus points.
Short-term loans are all about speed and the provision of funds within a particular timeframe. Decisions can be made within hours of valuation meaning funds can be released quickly. In turn, because loan approval does not rely on multiple factors such as income and credit worthiness, short-term loans can act as a temporary stop gap facility.
Loans of this type never last much beyond twelve months and the majority redeem within six to eight. While headline interest rates are higher than for longer term forms of financing, the cost is more than offset by the convenience and speed of access and the fact that there is no credit risk.
For business use, short-term loans are usually provided by specialist lenders, either working directly with the customer or through financial intermediaries. The important aspects to look out for are an understanding of any conditions put on the loan, both in terms of fees at outset and at redemption. Most lenders operate a very transparent offering with clear terms and conditions, but my advice would be to work with an adviser versed in this particular market segment.
Popular uses for short-term loans:-
• Capital Raising
• Property Acquisition where Planning or Development is pending
• Development Finance
• Tax Liabilities
The two main forms of short-term lending are:-
Bridging (secured against bricks and mortar)
Traditionally, short-term loans were designed as a ‘bridge’ in the funding of commercial or residential property between the time of purchase and that of putting in place a longer term funding solution or onward sale of the property. Bridging finance, as it became known, has become an effective temporary funding solution to purchase of property at auction or as a means to complete a purchase prior to the granting of a long term mortgage. However, as long term funding for businesses has become more difficult to arrange quickly, property owners have been using short-term bridging to raise immediate funds against their existing property to fund their business requirements.
Personal asset lending
Over the past three years, the flexibility of short-term lending has been widened with the launch of personal asset lender, borro. Instead of lending against bricks and mortar, borro lends against high value personal valuables such as jewellery, luxury watches, gold, fine art, antiques, sculpture, prestige cars, fine wine and more. For business clients, borro’s proposition provides funds of up to £1 million for any purpose. By lending against a different asset class, borro offers extra value to business owners who might have reached the limit of the lending available through conventional sources of liquidity.
The demand for short-term funding is undeniable. It provides business owners with a dynamic facility geared to providing a cash injection when it is really needed. Providing it is understood to be a temporary facility and the exit strategy via redemption or replacement with longer term finance has been thought through, short-term lending will remain a vital part of the armoury of any business.
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