Bridging loans for business owners: leverage home equity to unlock working capital

Bridging loans are on a steady rise, with bridging loan lending rising from £195.5 million in 2023 Q4 up to £196.2 million in Q1 of 2024. If you’re one of the many business owners considering whether this solution may be suitable as a form of short-term finance to help you meet urgent needs, read on. We’re uncovering what bridging loans are and how they can help you leverage your home equity to meet working capital needs.

What is a bridging loan?

A bridging loan for businesses is a type of short-term business loan. It’s a secured loan designed to bridge the gap between funding. A good example of a bridging loan is wanting to buy a house without having sold your current home yet. A bridging loan could provide you with the necessary funding while you wait for the sale on your previous property to come through, at which point, you would repay the bridging loan.

How to use a bridging loan to unlock home equity for working capital

A bridging loan could be used to enable you to borrow money using the value currently in your home as security for a loan. The lender gives you the loan now, using your home’s value as collateral for the loan, and you agree to repay it very soon, usually within the next year, sometimes two.

Bridging loans are designed to be repaid when further funding comes in, usually in the form of a sale or investment. To apply for a bridging loan, you often need to supply an exit plan which demonstrates how you intend to repay the loan.

Why would a business owner use home equity to access business finance?

If you need funding to support working capital in the upcoming months, it’s possible you may have considered whether your home may be able to support a business finance application. These are some of the possible benefits of this decision.

Quick turnaround time

Bridging loans are generally faster to gain access to than more long-term types of funding.

Flexible use

You can usually use the funds for whichever working capital requirements you are currently facing, whether that’s payroll, marketing, or inventory.

Company age

Younger businesses can face more working capital issues, due to irregular income, than more established businesses, while also finding it harder to gain funding. For that reason, some start up founders can consider their homes as collateral for a business loan.

The risks and drawbacks of using home equity to gain funding

Your home may be one of your most important assets, so it’s important that you protect it. Using your home as equity to gain funding is a serious decision and there are major risks involved, including some of the below.

Loss of property

Defaulting on the loan can result in repossession of your property. Consider this very carefully before entering into an agreement.

Short repayment terms

Bridging loans are short-term loans, which makes them riskier by nature. They often need to be repaid within a year, sometimes that can extend to 18 months or 2 years, but they are not a long-term solution and you must consider your exit plan before taking out this type of finance.

Higher interest rates

Bridging loans, as a short-term form of funding, usually come with higher interest rates than long-term funding types, like commercial mortgages.

Should I use home equity to gain a bridging loan for my business?

Maybe, but it’s a risky concept on several fronts. We recommend talking to an independent financial advisor before using personal assets as security for business finance.

Alternative finance solutions

As mentioned, bridging loans are usually used for short-term large costs where the borrower has a clear and reliable exit strategy, for instance, an upcoming property sale or refinancing arrangement. While the above use case is a possibility, it can carry heavy risk. Here are some other possible solutions for business owners looking for finance.

Invoice finance

If you regularly invoice clients and need to wait weeks or months for payment, invoice finance enables you to unlock a portion of that money early. Invoice discounting enables you to use invoices as security for a short-term loan, whereas invoice factoring essentially lets you sell invoices.

Unsecured business loan

Unsecured business loans don’t require you to put up collateral. Instead, they’re based on factors like your personal and company creditworthiness and cash flow projections.

Secured business loan

Your home may not be your only asset. If your business holds assets like vehicles, equipment, or even a commercial property, these could be used to help you gain access to a secured business loan. Using company assets may help reduce your personal risk level.

Personal loan

You could use a personal loan to pay for business expenses. Using a personal loan can be a more sustainable way to use personal assets to support a business, as the finance may be less short-term than something like a bridging loan.

If your business is under 3 years of age, you may be able to use the government's start up loan scheme. They offer business loans which function similarly to personal loans with a set interest rate of 6% and support in creating a business plan.

Working capital finance

Working capital finance can be used to help with the general running your business, including helping you manage seasonal fluctuations.

Find a bridging loan with Funding Options by Tide

We help connect eligible borrowers to our network of over 120 lenders. We facilitate between £1,000 and £20 million in funding across a range of funding solutions, including auction finance, property development finance, commercial mortgages, and of course, bridging loans.

Over 21,000 happy customers have trusted us with their funding needs and we’ve helped facilitate more than £900 million in funding. If you’d like to find a bridging loan or another type of business finance, submit your information below and we’ll be in touch to let you know if you’re eligible.

Find a bridging loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.