The Pros and Cons of Using Business Loans for Commercial Growth

Growing your business—whether through new premises, property development, or expanding operations—often requires a financial boost. Business loans, including products like bridging finance, can provide that injection of capital when timing is critical. But like all finance tools, they come with both upsides and risks.

At Cotterell & Cotterell, we support businesses with tailored funding solutions. Here’s a clear look at the pros and cons of using business loans to support commercial growth, based on real-world insights from property and finance professionals.

The Pros

1. Quick Access to Capital

In situations where time is of the essence—such as snapping up a property deal or covering unexpected costs—short-term finance like bridging loans offers fast access to funds. This is particularly helpful in competitive markets where delays can mean missed opportunities.

2. Supports Business Expansion

Whether you’re moving into larger premises or renovating your existing location, business loans can help make these ambitions a reality without draining your working capital.

3. Flexible Finance Options

There’s no one-size-fits-all when it comes to business finance. Depending on your needs, you might explore options such as:

• First-charge or second-charge bridging loans depending on existing borrowin

• Open or closed bridging loans tailored to your repayment time frame

• Loans structured with fixed or variable interest rates to suit your risk tolerance​

4. Allows You to Act Before Selling or Refinancing

In many cases, businesses use short-term loans to buy property or fund work while waiting for a sale or refinance to complete. This flexibility can be a strategic advantage when managing cash flow or coordinating complex transactions.

The Cons

1. Higher Interest Rates

Business loans—particularly bridging finance—typically carry higher interest rates than traditional commercial mortgages. While this reflects the short-term nature and quick turnaround of the funding, it can increase overall borrowing costs.

2. Secured Against Property

Most bridging and commercial loans are secured, meaning your property is used as collateral. If you’re unable to repay, there’s a real risk of repossession. That’s why it’s essential to have a clear repayment or “exit” strategy in place.

3. Additional Fees

Beyond interest, there may be other costs involved—such as arrangement fees, valuation fees, and legal expenses. These can quickly add up if not accounted for early on in your planning.

4. Short Repayment Terms

Some short-term loans need to be repaid within months, not years. This can place pressure on your business if you’re relying on future income or delayed asset sales to clear the debt.