In South Africa, there’s a critical need for fast, short-term financing solutions, with only around 25% of SMEs having used bank funding. Yet, growing your business comes at a cost.
As a result, analysts estimate that the alternative lending market reached $297 million (roughly R5.7 billion) in 2024, and is likely to reach $619 million (R12 billion) by 2028.
For SMEs in particular, bridging finance can be a lifeline. It offers faster, easier access to capital than a traditional bank loan, and it can cover unexpected shortfalls or day-to-day operational costs.
What is Bridging Finance?
Bridging finance can take various forms, depending on the business need and type of finance required. At its core, bridging finance is a short-term loan, often secured against assets, used to bridge a cash flow gap until you secure more permanent financing.
Bridging finance, also known as bridge finance or bridging loans, can be used as a temporary solution for a business’s specific need. This type of finance can also include bridging credit, such as:
- Lines of credit
- Bridging loans for the sale of property
- Equity bridge financing
Who Needs Bridging Finance?
SMEs and entrepreneurs can use bridging finance to generate working capital, manage cash flow, restructure debt, and support business growth.
What To Do with Bridging Finance
With bridging finance, you can:
- Fund business expansion by investing in new equipment, expanding operations or hiring new employees.
- Cover short-term cash flow needs, like outstanding supplier invoices.
- Finance property transactions or other assets, by helping you close a deal while awaiting a long-term loan.
- Restructure debt to protect your bottom line.
The aim is to protect your cash flow while covering the gap between projected and received income, or until you secure longer-term finance.
Bridging finance is typically secured against assets – like property, equipment or invoices.
Why Use Bridging Finance?
A bridging loan is a popular bridging finance option for businesses, from SMEs to large companies, especially in property and construction, with the inclusion of commercial property specialists and developers.
In international trade (import and export) bridge financing can help to cover unexpected costs or transactions. Companies in the midst of a merger, or acquisition or preparing to list on the stock market also benefit.
Bridge financing can be a lifeline for companies who face delayed payments or need quick cash. If you have a recurring challenge with late payments from customers, or need cash quickly to smooth the wheels on a critical transaction, it could be suited to you.
If you’ve decided to apply for funding, we’ve got tips to ensure that your SME is approved for funding. You can also familiarise yourself with these top reasons small business funding applications get declined.
Bottom line? If you’re planning to take the next step to growth, or need help managing your cash flow, you’ve likely considered this type of finance.
Why Bridging Finance Can Give You an Advantage
In business, cash flow is king – and bridge financing can do more than cover a short-term gap.
The right funding can help you grow your business at the right pace, with the flexibility you need. Bridging credit can offer a longer-term option.
How Bridging Finance Works
Bridging financing can be appealing for various reasons. Chief among these is ease of application. It usually involves minimal paperwork, and you can often get funds within days, rather than weeks or months, which is common with traditional business loans. Some lenders, such as Lula, offer approval within as little as 24 hours. Find out more about alternative business funding here.
Of course, if you’re facing a cash crunch, bridge financing is particularly attractive. Because the loan is secured against your assets, lenders can assess the health of your business and/or its underlying assets.
You typically need to repay within 6 to 12 months.
Understand Bridging Finance Risks
Bridging finance can be invaluable – but it’s still debt, and should be used responsibly. Here are a few key factors to consider when applying:
1. Check the interest rate
It’s important to consider the cost of credit. Even a loan with a low interest rate can be expensive if it comes with hidden fees.
If you’re paying up to 5% interest per month, that’s a 60% annual rate. While you’re doing your research and considering different funding options it’s important to keep the interest rate or repayment fee in mind.
With Lula’s alternative funding solutions, you only pay for what you use, when you use it. Our repayment fees, which are clear from the start, are fixed and not based on interest rates. We also don’t have admin or initiation fees, and there are no penalties for early settlement.
2. Assess the repayment plan
Watch out for complicated loan repayment plans with hidden fees.
While the funds can be a lifeline, the wrong payment structure may drain your finances and waste your time on paperwork rather than business growth. Use this business funding calculator to estimate how much you can expect to pay every month for funding with us.
Think about whether you want the flexibility to settle up early without a penalty fee. An advantage of accessing funding with Lula, along with transparent pricing, is zero penalties on early repayments.
3. Find out what the funding limit is
Naturally, how much you’re able to borrow is a critical consideration.
If you secure bridging finance without a high enough credit limit, you might find that your growth is restricted. You will need to have enough capital to fund your vision for expansion.
With Lula, you can access up to R5 million in funding, which could be used to bridge the cash gap when investing in property, equipment, inventory or other big-ticket items, putting fuel behind your growth plans.
4. Consider the waiting period
Traditional bank loans are notoriously slow to secure, often requiring extensive paperwork, and weeks of waiting. Alternative lenders like Lula turn this status quo on its head, offering funding within days – or even hours.
For instance, we assess applications in minutes once all documentation is submitted, and aim to make funds available to successful applicants within as little as 24 hours.
Alternatives to Bridging Finance
Straightforward bridging finance is a good option for many, but isn’t always the best option, depending on your needs. You might also explore options such as revolving credit, trade finance or equity finance.
Revolving credit facilities
Revolving credit facilities, like a bank overdraft, provide funds up to a set limit, giving you breathing space to manage cash flow and cover short-term expenses.
The advantage is that you don’t need to reapply for a loan, but these are often granted based on a personal credit score as well as the credit score of the business.
Something similar to a revolving credit facility is Lula’s Revolving Capital Facility, a flexible line of funding that gives you easy access to working capital, and better control over your business’s finances.
Using real-time transactional data, we assess a business’s affordability for an advance on future predicted income. The best part is that you only pay for what you use, when you use it.
Trade finance
Trade finance supports you with importing and exporting requirements, through letters of credit or trade finance loans.
This type of credit is specific to international trade, and may not cover the full spectrum of your needs, or be appropriate for your industry.
Equity financing
For larger or more established businesses, equity financing could be an option. This involves raising funds through the sale of shares to investors, however applying for it can be a slow process.
Flexible Funding with Lula: A Smart Alternative to a Bridging Loan
As an SME, fast, affordable financing isn’t just a nice-to-have; it’s a necessity.
When weighing up business finance options its important to consider factors like funding limits, the cost of funding, your repayment commitment and the turnaround time on a funding application.
Bridging finance can be a lifeline for businesses, but it’s important to do your research and understand the terms and conditions before accepting any offer you receive.
For SMEs, Lula’s flexible funding solutions offer a faster, more affordable alternative that is tailored to your cash flow needs.
Our Revolving Capital Facility offers flexibility through a facility you can seamlessly draw down from whenever the need arises, while our Capital Advance works similarly to a loan, advancing a fixed-term lump sum amount, repaid over 3, 6, 9 or 12 months.
At Lula, we know how important the right kind of funding is for your growth, which is why we’re committed to providing the fastest, most efficient way to access finance. We offer flexible solutions with an easy online application process – no hidden fees and no early settlement penalties.
Apply now to get up to R5 million in business class banking and funding through a fully digital, fast-tracked application process.
