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Finance, Loans

We’ve got long-term and short term already – now we have long-term-short-term?

In the “traditional” world of looking for a loan, you’ve got two sets of timeframes when you’re looking at payment schedules. The option known to most is long-term mortgages or unsecured loans. These are normally aimed to take around 15-20 years to pay off, and most businesses looking at major projects will be pursuing them. The lesser-known, but still very much utilised, option is the exact opposite; short-term finance. This can take a variety of forms, from “bridging” finance to allow a business to keep operating whilst it looks to sell, through to smaller loans for things like asset purchases, or just to help with cashflow evening-out. These are often only designed to last for 1-2 years, so you get your cash for the specific purpose you need it, and when that purpose is done you pay back the loan. But with the time it takes for many sales and projects lengthening in recent years, we’ve got a fun new type coming to the fore – long-term-short-term!

According to a study by the Centre for Economics and Business Research (CEBR), the average time it takes to sell a property has increased by two weeks over the last year. In a climate of uncertainty like the one we’re currently in, that’s no surprise – buyers naturally want to be more certain about exactly what they’re getting for their money. But for those developers who need to extract the funds from their projects to fund their next development, the lengthening time to sell is more and more of an issue. A longer time to sell means knock-on effects for all their future projects, and an interruption in the profit and cashflow of their business. What this means is that when they’re looking for finance, they want a longer-term product, but not one that ties them up for decades. Not quite lasting long enough to really be called “medium-term” finance, these new loans are designed to last 3-5 years, giving short-term options with longer terms to pay them off and avoid running out of time to repay your loan.

Whether these new options will become a commonplace loan offered by lenders nationwide is something that only time will tell. But as the world develops, so must the finance available – it’s good to see the financial world adapting to the needs of its borrowers!

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