A prominent business is seeking bridging funding to save itself from administrators. At Swoop, we’ve secured this type of finance before for customers in a temporary cashflow bottleneck.
Whether you like rugby or not, there’s a lesson to be learned from the statement issued by Wasps Holdings Limited on 12 October concerning the rugby club of that name. Here’s the paragraph that caught our eye at Swoop:
“While the companies within the Group all represent strong and viable businesses, the reality is that they have insufficient cash at this time to continue to fund operations … We have therefore been asking potential funders and investors to provide bridging finance to provide enough time for a solvent solution to be found.”
You might look at Wasps and see thousands of ticket-buying fans wearing the merch and ask how this could’ve happened. We’re not going to analyse the problem: if it can happen to them, it can happen to anybody.
What we do look at in Swoop is the solution – though Wasps are already halfway there by seeking bridging finance.
Bridging finance is a short-term solution to solidify your short-term position until a long-term financing option can be arranged. For example, if you are in the middle of a property purchase, you will likely be familiar with the idea of bridging finance to cover costs when one party needs payment and the other party has not yet sold their assets that will cover it in full.
Here’s an example from Swoop’s recent deals:
The customer had bought a number of properties which took them to the limit of their agreed credit limits. At the eleventh hour, another property came onto the market that was particularly attractive: an unmissable deal.
The property was great, the timing was not.
Swoop’s Funding Manager was able to secure a deal, putting up another property as security against a bridge facility until further sales on the whole portfolio could be used to make the purchase.
Ted Page, Head of Swoop for Brokers, says that having an asset as security is essential:
“Most ‘bridging’ products are secured against property, rather than for SMEs to take against their balance sheet. Whether it’s a field in the middle of nowhere or a Central London townhouse, you can borrow up to 75 percent of the asset value.”
It is also important to get a proper valuation of assets:
“If you are buying a property at auction you may get it for less than full market value. Say you secure a £100k property at £70k. If you were to use that asset as collateral, you could get a bridge for the full purchase price.”
Andrea Reynolds, Co-Founder and CEO at Swoop, says that bridging loans are a necessity – and not just for commercial mortgages:
“At Swoop, we say that cash is king. The Wasps’ current problems are a great example of how a good business can risk going into administration just because they have a temporary problem with cashflow. We are most used to thinking about bridging loans for property purchases, but any business can find they need extra money unexpectedly.”
Many of Swoop’s customers need to borrow just to keep liquidity. VAT loans, for example, help smooth out tax bills while revolving credit is effectively a bridging facility on standby until it is needed. Andrea says:
“The best way to avoid the need for funding in a hurry is to know your options before you’re forced to borrow.”
Ted Page agrees that bridging loans should be something that businesses keep in mind:
“When you need the money and the clock is ticking, you’re in a bad position to strike a good bargain. At Swoop we always recommend that you keep aware of what you could borrow if you had to and try to anticipate when you will need it in advance. Swoop is designed so that you can carry out these checks without damaging your credit score and give yourself peace of mind that if something were to happen, you have a line of credit you can rely on.”
These checks can be carried out in a few minutes by signing in to your Swoop account. As our property customer found, for larger or more complex cases, the Swoop team is ready to use their experience and market knowledge to find a solution quickly.