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Why are we so terrified of paying for speed, in the form of fast finance? In business and property, there is a weird form of guilt around borrowing quickly, as if waiting three months for a traditional bank loan is inherently more virtuous than securing capital in forty-eight hours.
Speed is a premium utility. Like courier shipping or premium flight tickets, fast finance carries a higher upfront ticket price. The real skill lies in recognising exactly when that premium creates a massive commercial advantage and when it simply eats your margin.
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The True Price of Execution
There are situations in which expediting your access to funds will make sense, as long as the benefits you derive from your ability to act quickly outweigh the overall expense of the debt.
For instance, if there exists an investment asset that has been discounted to a price far lower than its current market price and you need to inject liquidity into a time-sensitive commercial agreement quickly, the speed of obtaining money will be your best defence. In these cases, the “bang for buck” of the opportunity justified the higher interest rate associated with faster funding.
When Velocity Outpaces Value
When fast money is used as an ongoing repair for a flawed business-cash-flow model, high-speed capital can become toxic. Using high-cost, high-speed money to pay regular operating expenses or to fund accounts receivable that have outstanding payments increases your financial exposure. To achieve a fast financing opportunity, you need to have a confirmed, fast-exit strategy in place.
To receive high-cost capital, you must be able to confirm your exit strategy. The exit strategy could include selling the asset or entering into a long-term commercial mortgage. If your exit strategy is dependent on luck, the interest payments from the loan will consume much of your equity.
Quantifying the Cost of Time
Smart borrowing relies on precise calculation. In order to determine whether or not to utilise a high-speed facility, you have to know exactly how much it will cost you. Utilising a bridging loan calculator allows you to compare the costs of speed versus all other forms of financing that may be available to you, and also illustrates specifically how your monthly interest charges and facility fees directly affect your net profit. The increased clarity regarding the use of your funds when making this type of decision removes the emotional factor from what would otherwise be an emotionally charged process.
Once you have run the numbers based upon your worst-case scenario exit plan, if you are able to still generate a reasonable profit when utilising a fast lender due to a two-month stall of a project, then fast financing has become a legitimate commercial tool. However, if your margins completely disappear simply because there was one month less than originally expected for completion of a project, then consider alternative sources of funding.
Your Next Financial Move
Treat fast finance as a precision tool. Review your current pipeline and identify any high-value opportunities that are currently stalled by a lack of immediate liquidity. Calculate the exact monetary value of unlocking those deals today. If the financial return outpaces the cost of rapid deployment, execute with confidence. Secure the funds, hit your targets, and transition to your long-term refinancing plan immediately.
