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Bridging loan helps finance alternative energy project

A hydro energy scheme has been made possible through the use of a bridging loan.

According to a article from October 2017 farmer based in the Borders region wanted to build a run of the river hydro plant on his land. He approached traditional lenders for a loan, but they wanted an equity stake in the project as security for the loan. He then tried business finance companies and was offered a bridging loan for £3.3m for 36 months, at a 60% loan-to-value rate.

The farmers land had value, and at each stage of the construction process, the value of the partly built hydro plant rose. This was enough security for the bridging company to fund the loan without needing an equity stake in the project. It is estimated that the hydro plant can generate an income for the farmer for at least 20 years.

A hydro plant works in a similar way to a dam. The energy of water falling is converted into electricity which can then be sold on the national grid to provide an income. Wind farms and solar panels are the more common types of alternative energy as hydro power needs a long drop for the water to fall.

The hydro plant in the Borders, is not the only alternative energy project that has used bridging loans for finance. Though most bridging loans are property related, the hydro plant project shows that bridging loans are flexible loans that can be used to finance a number of projects.