Can I use a bullion loan as short-term bridging finance?

What bridging finance means

Bridging finance is short-term credit used to cover a timing gap between needing money and receiving funds you expect, such as the proceeds of a property sale, a business payment or a tax refund. When the expected funds arrive, they are used to repay the loan. A bullion-backed loan is one form of secured credit that can be used in this way.

How it generally works with bullion

You pledge coins or bars as security, the credit provider completes the credit and affordability assessments required by law, and you receive a pre-agreement quotation showing the amount, interest, fees, term and total cost. You repay when your funds arrive, either at the end of the term or earlier, and the bullion is released once the loan is settled. You can generally settle early, which may reduce the interest you pay. You can settle early at any time without penalty. Ask Knox for a settlement figure, which is valid for 24 hours; you can also make extra payments at any time without notice.

Questions to consider first

• How certain is the expected payment, and what could delay it?
• Does the loan term comfortably cover the likely timing, with room for delay?
• What is the total cost of credit for the period you expect to borrow?
• Could a fall in the gold price during the loan lead to any request for repayment or more security? Knox's pawn agreement has no margin-call clause: the amount you owe does not change with the gold price, and Knox does not ask for additional security or early repayment if the price falls.
• What happens if the funds are late and the term ends?

What depends on Knox policy and what to do next

The terms available, the cost and whether a loan can be extended are set by Knox's credit policy. Interest is charged at the fixed rate shown in your quotation, calculated daily and charged monthly. The quote also shows an initiation fee and a monthly service fee. Knox charges interest of 5% per month on a client's first loan. On later loans the rate ranges from 3% to 5% per month, depending on the loan. Any extension has to be agreed in writing. There is no automatic right to extend a loan. Any change to the term must be agreed and recorded in writing. Timing depends on the assessment, the documents you provide and the credit checks the law requires. If you are bridging a property or business transaction, speak to your attorney or accountant about the timing and risks before you commit.