Bridge Loan

A short-term loan used to provide immediate funding until permanent financing is secured or an obligation is met.

A bridge loan is a temporary, short-term financing option designed to provide immediate cash flow until a borrower secures permanent, long-term financing or resolves an existing financial obligation. In corporate finance, these loans typically have maturities ranging from a few weeks to one year, carry higher interest rates than standard debt, and are often backed by collateral such as real estate, inventory, or the assets of an acquisition target. Companies frequently use bridge loans to close time-sensitive acquisitions quickly, fund urgent capital expenditures, or maintain working capital while waiting for a larger capital raise to close. Because these loans are meant to be temporary, they are usually structured with the expectation that they will be repaid rapidly using the proceeds of a subsequent equity issuance, bond offering, or syndicated bank loan. For equity and debt investors, the presence of a bridge loan on a company's balance sheet introduces refinancing risk. If credit markets tighten, interest rates spike, or the company's financial performance deteriorates before the bridge loan matures, the company may struggle to secure permanent financing. This can force the company to roll over the debt at highly expensive rates or issue dilutive equity under unfavorable market conditions, potentially harming the stock price.

Company A agrees to acquire a competitor for $500 million. To close the transaction immediately, Company A secures a 6-month bridge loan of $500 million at an annual interest rate of 8%. Three months later, Company A successfully issues $500 million in 10-year senior notes at 5% to pay off the bridge loan. The total interest paid on the bridge loan for the 3-month period is $500,000,000 8% (3 / 12) = $10,000,000.